“A” Mortgage Lenders
The traditional lending sources for mortgages – banks, credit unions and other institutions with similar purposes that cater to customers with good credit scores and a reliable income — these are considered an “A” clientele. With an A lender, a borrower qualifies for a mortgage based on her/his income and credit.
A legal term for the willing renunciation of rights to an asset or relationship. In the real estate. abandonment relates to a property that the owner voluntarily relinquished his/her rights to. Once property has been “abandoned” it is no longer the property of the owner or debtor and creditors can seek to recover their money.
Abstract of Title
The written history of a piece of land to document all transactions associated with that land from the time the property was first sold to the present. The title company uses it to produce a title binder, or the temporary insurance for a piece of property pending closing and obtaining a permanent title.
A contractual obligation requiring borrowers to pay off their mortgage in full if they do not meet certain requirements outlined in the mortgage. Acceleration clauses protect lenders when borrowers miss payments or break any covenants defined in the mortgage contract. Many debt instruments contain acceleration clauses, but they are most common in the real estate industry.
Accelerated Bi-Weekly Mortgage Payment
A frequency of mortgage payment – when a monthly mortgage payment is divided by two and the amount is withdrawn from the bank account every two weeks. In total, 26 payments per year, but the payment amount is slightly higher than a regular bi-weekly mortgage payment.
Accelerated Weekly Mortgage Payment
A frequency of mortgage payment – when a monthly mortgage payment is divided by four and the amount is withdrawn from the bank account every week. In total, 52 payments per year, but the payment amount is slightly higher than a regular weekly mortgage payment.
Accredited Mortgage Professional (AMP)
A designation for those in the mortgage industry that have passed a single national proficiency standard for mortgage professionals in Canada.
An interest that has been incurred on a loan but is yet to be charged and in turn paid by the borrower. The interest on the mortgage is calculated daily, but mortgage payments are paid either weekly, bi-weekly, semi-monthly or monthly. Interest accrues from the time of the last payment paid to the time of the next mortgage payment.
Fees one must pay in the process of buying a property. Examples of acquisition fees include closing costs, commission to the real estate broker, and any costs associated with development and construction.
One may pay acquisition fees directly, or one may borrow them along with the mortgage.
A security over a loan guarantees the lender a portion of the value of the loan until the loan is repaid in full. Usually, the property the borrower has taken out the loan to buy acts as the security over the loan, but in some cases, the borrower may have a guarantor on the loan who puts up their property as security.
An extra payment that goes towards the principal portion of a loan. Any amount the borrower pays above the minimum repayment amount is an additional repayment. Additional repayments allow the borrower to pay off the borrower’s loan sooner. The more paid in addition to the borrower.
Adjusted Cost Basis (ACB)
A tax accounting term that refers to the change in an asset’s book value resulting from improvements, new purchases, sales, payouts, or other factors. An adjusted cost base can be calculated as Original cost – Depreciation + Capital Expenditures.
Adjustable-Rate Mortgage (ARM) Margin
A fixed percentage rate that is added to a variable rate to determine the fully indexed interest rate of an adjustable-rate mortgage (ARM).
Adjustable-Rate Mortgage (ARM)
A type of mortgage in which the interest rate applied to the outstanding balance varies throughout the life of the loan. With an adjustable-rate mortgage, the initial interest rate is fixed for a period of time. After this initial period, the interest rate resets periodically, at yearly or even monthly intervals. ARMs are also called variable-rate mortgages or floating mortgages.
The interest rate for ARMs is reset based on a benchmark or index rate, plus an additional spread called an ARM margin. When index rates are rising, the adjustable rate on an ARM increases which benefits the lender and generates a greater level of interest income. Adjustable-rate mortgage loans are beneficial for borrowers when index rates are falling.
The amount of time between interest rate changes on an Adjustable-Rate Mortgages. The rate adjustment interval is often displayed in x/y format, where “x” is the period until the first adjustment, and “y” is the adjustment period thereafter. For example, a 5/1 ARM is one on which the initial rate holds for 5 years, after which it is adjusted every year. The rate adjustment interval and the payment adjustment interval are the same on a fully amortizing ARM, but may not be on a negative amortization ARM.
After an initial fixed-rate period, the ARM interest rate adjusts up or down once per interval for the remainder of the loan.
The nominal interest rate used when calculating the interest expense on a loan.
A person or company authorized to act on behalf of the customer who is selling or to arrange financing of the customer’s property.
Agreement of Purchase and Sale
A written agreement between the seller and the buyer in which the buyer agrees to buy the certain real property and the vendor agrees to sell upon terms and conditions as set forth in that agreement.
A note on a person’s credit report that indicates other names used for their financial accounts. Sometimes marked as “Also Known As” or “AKA.” This can include maiden names or variations on the spelling and format of the person’s full name.
Also called a due-on-sale clause, is a provision in the mortgage contract signed with the lender that states that the borrower must pay the mortgage in full before the borrower can transfer the property to another person. An alienation clause goes into effect whether the property transfer is voluntary or involuntary.
A type of loan that allows homeowners to pay down more interest in the short-term while giving them access to the equity built up in the property. All-in-one mortgages allow for the combining of a mortgage and savings. It combines the elements of a checking and saving account with a mortgage and home equity line of credit (HELOC) into one product, giving the customer access to all of the funds above the value of the minimum home loan repayment amount. An all-in-one loan is also known as a home equity loan or a transactional loan.
An amount of money set aside for future investment in mortgages.
A type of non-conventional mortgage. Funds of alternate mortgages originate from private individuals, mortgage investment companies (MICs) or mortgage finance companies (MFCc) which lend out for investment purposes.
Alternative lending is aimed at borrowers who do not meet traditional lending criteria and when traditional loans cannot be approved. The alternative mortgages usually come with higher interest rates. Alternative mortgage lenders base their rates on the area, type of property, degree of risk perceived and estimated costs of administration. Each private mortgage interest is quoted on individual circumstances.
A feature of the home or property considered to benefit a property and thereby increase its value. An amenity is an additional feature and not a necessity. It may be a natural feature such as a park or coastal location, or a man-made addition such as a swimming pool or an outdoor entertaining area.
The process of repaying a debt or mortgage loan over time in regular installments of principal and interest repayments. The principal balance on a mortgage declines over time as the borrower makes periodic payments. A higher percentage of the flat monthly payment goes toward interest early in the loan. With each subsequent payment, a greater percentage of the payment goes toward the loan’s principal.
A table showing the amounts of principal and interest comprising each level payment due at regular intervals and the outstanding principal balance of the loan after each level payment is made.
The period of time (usually a number of years) over which a loan will be completely paid by regular installments of principal and interest repayments.
A type of debt that requires regular monthly payments. With each payment, a portion of the payment goes toward the loan’s principal and part of it goes toward interest.
Also known as an installment loan, fully amortized loans have equal monthly payments. Partially amortized loans also have payment installments, but either at the beginning or the end of the loan, a balloon payment is made.
A loan principal a borrower receives from a lender and other costs and fees that have been rolled into the loan. The amount financed is usually equal to the principal (plus any other costs) less any finance charges, such as an application fee or down payment.
The amount financed plays a part in the interest rate determined by the lender. That is because a larger loan deposit or mortgage down payment means the borrower is financing less.
Annual Mortgage Statement
A report sent to the borrower every year, detailing how much principal remains on the mortgage and how much was paid in taxes and interest during the previous year.
Annual Percentage Rate (APR)
The simple annual rate charged for borrowing or earned through an investment. The APR includes the interest expense on the loan and all fees and other costs involved in procuring the loan. These fees can include broker fees, closing costs, rebates, and discount points. APR is a more accurate picture of total borrowing cost as it takes into consideration other costs associated with procuring a loan, particularly a mortgage.
The APR is always greater than or equal to the nominal interest rate, except in the case of a specialized deal where a lender is offering a rebate on a portion of the borrower’s interest expense.
Annual Percentage Yield (APY)
The actual rate of return earned on a savings deposit or investment in a year taking into account the effect of compounding interest. APY is calculated using the formula: (1 + r/n )n – 1, where “r” is the stated annual interest rate and “n” is the number of compounding periods each year. APY is also called the effective annual rate, or EAR.
Amount a lender charges to process a loan application documents. Application fees are common with mortgage loans and many lenders apply the cost of the application fee towards the borrower’s closing costs. Application fees are generally non-refundable.
A specific kind of statistical scoring that businesses use to evaluate an applicant for acceptance or denial. Similar to credit scoring, application scoring often factors in other relevant details such as employment status and income to determine risk.
An estimate of the market value of a piece of real estate based upon a variety of factors. There are 3 main methods of appraising: Comparative sales approach, Cost replacement approach and Income approach. Which method is used depends on the circumstances in which the real estate is to be used.
There are several times a property owner may choose to get a property appraisal, including: when buying or selling a home/investment property, refinancing, taking out equity, and even when appealing a property tax assessment.
The fee used to cover the cost of appraisal. The appraisal fee is usually paid by the borrower as part of the loan application costs.
A detailed estimation of the value of a property by a person licensed to do so.
A professional judgment of a property’s worth, which may not correspond to its actual market value or selling price. An appraiser considers the price of similar homes in the area, the condition of the home and the features of the property to estimate the value.
The increase in a real estate property’s value over time. How much a property appreciates each year depends on the local real estate market, inflation, and any improvements to the property. A property’s appreciation is calculated based on the fair market value of comparable homes/properties for sale in the neighborhood.
A transaction freely arrived at in the open market unaffected by abnormal pressures or by the presence of normal competitive negotiation as might be true in the case of a transaction between related parties.
Articles of Incorporation
A set of formal documents filed with a government body to legally document the creation of a corporation. Articles of incorporation set forth certain information as mandated by statute, like the ownership structure of a corporation, the corporation’s name, street address, agent for service of process, and the amount and type of stock to be issued.
Articles of incorporation are also called the “corporate charter,” “articles of association,” or “certificate of incorporation.”
The amount of money a property seller wants a buyer to pay to purchase his property. The asking price is generally part of the property listing and may not be the final price paid by the borrower.
The dollar value placed on a real estate property by local governments used to calculate property taxes.
A resource with financial value, which can be owned in the hope of providing future benefits or income.
A mortgage contract that allows, or does not prohibit, a creditworthy buyer from assuming the mortgage contract of the seller. Assuming a loan will save the buyer money if the rate on the existing loan is below the current market rate, and closing costs are avoided as well. A loan with a “due-on-sale” clause stipulating that the mortgage must be repaid upon sale of the property, is not assumable.
A provision in a mortgage contract that allows a buyer to take responsibility for the loan from the seller.
A provision in a mortgage contract that allows the buyer to take over the loan from the seller. It occurs when the buyer is assuming an existing mortgage from the current owner rather than applying for his or her loan.
A lender’s charge for updating records when a buyer takes responsibility for a mortgage from the seller.
Average Annual Yield
The income of an investment divided by the age of the investment. Such investments can be deposit accounts someone holds with the bank, shares of stock, or assets like commodities or real estate. The average annual yield is calculated by comparing rates of return over two or more years.
“B” Mortgage Lenders
Various non-banking institutions that deal almost exclusively in mortgages. Unlike the “A” lenders, these lenders offer a lower barrier of entry to qualifying for their products but can offset that with higher interest rates. This means that borrowers with bad credit or no credit, or with lower income can still get approved for a mortgage. “B” lenders rely more heavily on the equity in the property. “B” mortgage lenders do not deal with customer deposits. Also called Alternate Lenders.
Back-End Ratio/Back Ratio
Also known as the debt-to-income ratio, is a ratio that indicates what portion of a borrower’s monthly income goes toward paying debts. Total monthly debt includes expenses, such as mortgage payments (principal, interest, taxes, and insurance), credit card payments, child support, and other loan payments. It is calculated by the formula: (Total monthly debt expense / Gross monthly income) x 100.
Another offer or bid for a property to be considered by the property seller if the current offer falls through. When a home has a status of “Backup Offer”, it means the seller has accepted an offer from a buyer but is still accepting offers from other buyers. Sellers accept backup offers if they think the current offer may fall through.
A term used to describe poor credit rating. Common practices that can damage a credit rating include making late payments, skipping payments, exceeding card limits or declaring bankruptcy. “Bad Credit” can result in being denied future credit.
A term used to describe poor credit rating. Bad credit is often reflected in a low credit score. Common practices that can damage one’s credit rating include making late payments, skipping payments, exceeding card limits or declaring bankruptcy. Bad credit can result in being denied future credit.
Bad Credit Mortgage
A home loan option made for individuals with bad credit (scores below 700) who have been turned down by the major banks. The two most popular bad credit mortgage providers are alternative (or “B” lenders) and private lenders.
Debt that cannot be collected. Bad debts can be written-off on both business and individual tax returns.
The amount available in an asset account, or the amount owed on outstanding debt.
A statement of the assets and liabilities of a company or individual at some given time.
See the credit utilization ratio.
A loan that does not fully amortize over its term. At the end of the loan term, a balloon payment – one that is larger than the periodic payments, is required to pay off the remaining principal.
A type of mortgage which does not fully amortize over its term to maturity. The balloon mortgage usually has an initial period of low or no monthly payments, but at the maturity of the mortgage term, the borrower is required to pay off the full balance in a lump sum. The monthly payments, if any, may be interest-only.
A lump-sum payment due to pay off a loan at maturity. Balloon payment is usually much larger than the earlier payments on the same loan.
Bank of Canada
Canada’s central bank – was founded in 1934 and became a Crown Corporation in 1938. It serves to promote the economic and financial well-being of Canada and is responsible for setting the overnight lending rate and determining monetary policy.
The rate at which a nation’s central bank charges on loans to the charted banks. This is also the rate at which the chartered banks lend money to their prime customers.
The difference between the interest rate a bank charges a borrower and the interest rate a bank pays a depositor. A bank earns money from the interest it receives on loans and other assets, and it pays out money to customers who make deposits into interest-bearing accounts. The ratio of money it receives to money it pays out is called the bank spread. Also called the net interest spread, the bank spread is a percentage that tells someone how much money the bank earns versus how much it gives out.
A legal process through which a debtor who cannot repay debts to creditors may seek relief from some or all of their debts.
A unit of measure used in finance to describe the amount of change in yield in money debt instruments, including mortgages. It is one-hundredth of 1%. In other words, 1% equates to 100 basis points.
A credit scoring method developed by Equifax. It is the name of the FICO score from Equifax. Beacon Score (or FICO score) gives the lender insight into a borrower’s credit history and potential ability to be able to repay the debt for which they are applying.
An improvement made to an asset that enhances its value. In real estate terms, betterments are improvements to a property or to surrounding infrastructure, such as roads or sewers, that boost the value of a property.
Bill of Sale
A formal document that transfers the ownership of goods or property from one party to another. A bill of sale provides legal evidence that a seller has transferred all rights to an asset to a buyer.
A mortgage on which the borrower pays half the monthly payment on the first day of the month, and the other half on the 15th.
A mortgage on which the borrower pays half the monthly payment every two weeks. Because this results in 26 (rather than 24) payments per year, the biweekly mortgage amortizes before term.
A single mortgage used to provide financing for multiple properties owned by the same borrower. It is a common option used to finance commercial purchases. A blanket mortgage usually comes with a release clause which permits the borrower to sell a piece of property, without having to use the proceeds to pay down the loan.
A type of mortgage product that combines the mortgage rate from an existing mortgage with the mortgage rate from a new mortgage and blends them into a new rate somewhere in-between the two. Usually used by borrowers to avoid breaking their mortgage early with penalty, to access equity and/or obtain a lower mortgage rate.
There are two options of blended mortgage: Blend and Extend and Blend to Term. Under a Blend and Extend option, the lender gives a borrower a brand new term at the current rate but ‘blends’ the penalty for breaking the existing mortgage to the new rate so the borrower is not required to pay it out of the pocket, or add it to the mortgage.
With the Blend to Term option, the mortgage term remains as is, only a different interest rate is applied to the mortgage till the end of the term.
The method of repayment where periodical payments of principal and interest are made in such a way that the payments remain constant in amount over an agreed-upon amortization period.
An interest rate charged on a loan that represents the combination of a previous rate and a new rate. Blended rates are usually offered through the refinancing of existing loans that are charged a rate of interest that is higher than the old loan’s rate, but lower than the rate on a brand-new loan.
The allotment by a lender of funds for a number of loans for one builder.
The state of a home that is so well maintained that it looks new. Another term for blue-ribbon homes in mint condition.
The individual who is requesting the loan and who will be responsible for paying it back.
The highest price a buyer would be willing to pay for a property. Unless the buyer is making a “take it or leave it” offer, the homebuyer would initially offer a price lower than the bottom-line price and negotiate the price way upward.
The point at which expenses are equal to income or savings. It is a simple financial tool which can be used to determine at what stage a business or an investment will be profitable.
In home finance, the break-even point often refers to the time it takes to recoup the costs of refinancing a loan or paying discount points.
Short-term financing taken out against one property to finance the purchase of a new property.
Typically used if a homeowner is selling one property and buying another at the same time. Bridging finance offers homebuyers a short-term loan to cover the money they need to buy a new home while they are waiting for the proceeds of the sale from their old home. It’s usually charged at a higher interest rate than a standard home loan.
A short-term loan used to allow a homebuyer to purchase a replacement property while still trying to sell their existing home. The borrower’s current home is used as collateral and the money is used to close on the new home before the current home is sold. Some loans are structured so they completely pay off the old home’s first mortgage at the bridge loan’s closing, while others pile the new debt on top of the old. They usually run for a term of six months.
The amount a mortgage broker is paid for serving as the middleman between a lender and a borrower. This premium comes from the surcharge a broker applies to a discounted loan before offering it to a borrower.
An economic cycle that is characterized by the rapid escalation of market value, particularly in the price of assets. A bubble occurs when the price of a traded asset grows beyond its true value. The price of the asset grows rapidly and masks the relative insecurity of the price, which eventually results in a sudden, unanticipated drop in the value of the asset. Because of this, bubbles are often only identified after they’ve “burst,” causing financial distress for the asset’s owners. The crash of the USA housing market in the late 2000s was caused by the bursting of one such bubble.
A mortgage loan made to a builder for the purpose of erecting the house and for assumption of that loan by an approved buyer.
A set of minimum regulations respecting the safety of the buildings concerning public health, fire protection and structural sufficiency.
A process that ensures the property a homebuyer is looking to purchase is structurally sound and that there are no issues that will cause costly repairs in the future. Having issues uncovered in a building inspection can also offer the homebuyer leverage in negotiating a better price and some contracts of sale can be signed subject to an acceptable building inspection report.
An official document issued by a local government permitting an individual or company to demolish, construct, enlarge, or alter a building.
A lump sum payment as consideration for the reduction in the interest charged on a loan from that which would normally be charged.
Buy Down Mortgage
A home loan in which the lender charges below-market interest in exchange for discount points.
Buyer’s Agent (also the Selling Agent)
A party that acts on the behalf of a buyer to seek out suitable properties and negotiate with agents or vendors for a suitable price or contract.
A market in which the supply of homes significantly exceeds demand. Since supply is greater than demand, the price of homes is pushed lower, making them more attractive to buyers. In contrast, a seller’s market is one in which there are more buyers and relatively fewer homes for sale, which leads to multiple-offer situations that drive up prices.
A market’s absorption rate is the best way to figure out whether a certain area is behaving as a buyer’s market or seller’s market. The absorption rate is calculated by looking at how many homes sold in a certain month and dividing that number by the total number of homes for sale at the end of the month. An absorption rate of 20% or below is generally deemed a buyer’s market, since homes are selling relatively slowly and the number of months of supply (20/100, or 5 months) is high.
A financial contract that gives the holder or (buyer) the right to purchase a stock, bond, commodity or other security within a specified period at a predetermined price. The holder is not obligated to buy the stock, but he does not recover the fee paid to the writer (or seller) of the option.
In mortgages, it is a clause that gives the lender the right to request the balance at any time.
The third-largest mortgage insurance provider in Canada.
Canada Mortgage and Housing Corporation (CMHC)
A federal Crown corporation that administers the National Housing Act (NHA). Among other services, they also insure mortgages for lenders that are greater than 80% of the purchase price or value of the home. The cost of that insurance is paid for by the borrower and is generally added to the mortgage amount. These mortgages are often referred to as ‘Hi-Ratio’ mortgages.
Canada Mortgage Bonds (CMB)
A fully guaranteed fixed interest rate income investment backed by CMHC (a crown corporation of the Government of Canada).
Also known as an interest rate cap, is a limit on how high an interest rate can rise on variable-rate debt. Caps can give borrowers protection against striking rate increases and also provide a ceiling for maximum interest rate costs. Interest rate caps are commonly used in variable-rate mortgages and specifically adjustable-rate mortgage (ARM) loans.
A measurement of a borrower’s ability to repay a loan, capacity is a major factor in determining creditworthiness. Lenders determine borrower’s capacity by assessing whether a borrower is likely to continue to earn their current income or improve upon it during the period of the loan. They will generally look at the amount of time an applicant has held their current position and how stable that job appears to be.
The value of a long-term asset if it was to be liquidated at their current value.
An item that a person or company owns for investment or personal purposes, such as stocks, bonds, real estate or stamp collections. When a capital asset is sold, the owner earns a capital gain or a capital loss, depending on the price. Gains are taxed at a special rate, and losses can be used in many cases to reduce the amount that is taxed.
Capital Cost Allowance
A deduction from rental income such part of the capital cost of the property as is allowed by regulation under the Income Tax Act.
The profit that results from a sale of a capital asset, such as stock, bond or real estate, where the sale price exceeds the purchase price. The gain is the difference between a higher selling price and a lower purchase price. Conversely, a capital loss arises if the proceeds from the sale of a capital asset are less than the purchase price.
Capital Gain Tax
A federal tax charged on the monetary gain an owner makes from the sale of an asset. The primary residence is excluded from capital gains tax, or CGT, when the homeowners sell it.
On investment properties in Canada, the capital gains inclusion rate is 50%, which means that the owner has to include 50% of the capital gains as income on the owner’s tax return.
In the USA, the gain obtained in the sale of primary residences is taxable under certain conditions.
Any permanent structure or other asset added to a property that adds to its value.
Money used to purchase permanent fixed assets for a business, such as machinery, land or buildings as opposed to day-to-day operating expenses.
The loss incurred when a capital asset, such as an investment or real estate, decreases in value and is sold for a price lower than the purchase price.
The conversion of whole or portion of the interest amount on the loan or outstanding debt on the loan into a principal sum and the subsequent amortization of that sum with the new payment amount. This is a common practice for lenders that modify loans for borrowers that are in debt and cannot make their current mortgage payments or when lenders allow the borrower to make minimum payments on the loan for some time.
Capitalization Rate (Cap Rate)
A ratio used to estimate the return on investment of a real estate property, such as an apartment or a commercial building. It is calculated by dividing the net operating income of a property in a given year by the purchase price or current value of the property. Net operating income is the income derived from the property after subtracting operating expenses. For example, an apartment building that recently sold for $1,000,000 and generates $100,000 in income after expenses has a capitalization rate of 10%.
Lenders use the cap rate to make decisions concerning the interest rate when making commercial mortgages.
The cost of borrowing to acquire or construct a long-term asset. It is also the interest that a borrower owes on a loan but has delayed payment of the interests and the loan balance has gone up by the amount of unpaid interest accrued the borrower owes. Capitalization of interest typically occurs with student loans, as well as construction or real estate loans. The capitalization of interest will not occur until the borrower starts repayment on the loan. Interest will accrue on the loan even if it is not yet in repayment, but the borrower is often free to make an interest-only payment to prevent capitalization of interest from occurring.
A loan that has an interest rate that will not exceed a set level for a fixed period. That interest rate could fall when the official cash rate drops, but it won’t rise exponentially as standard variable rate can.
A type of mortgage where the borrower receives a cash rebate in addition to the amount financed to purchase a real estate property. With this type of mortgage, the lender will advance to the borrower a lump sum of cash when at the mortgage closing. The amount of cash rebate the borrower receives is calculated on the size and term of the borrower’s mortgage using a set percentage (usually between 1% and 7%). Mortgages with a cash back option always come with a fixed interest.
A refinance transaction where borrowers bring money to the closing table to lower their mortgage balance.
The actual inflow and outflow of cash during a given period, In a rental property owned by an investor, this refers to the amount of money a property generates after expenses are accounted for. It represents the money coming in and going out of a company or organization during a specific accounting period.
Cash Flow Forecast
An estimate of when and how much money will be received and paid out of a business over a particular period. A cash flow forecast shows the business’s projected cash based on income and expenses and is an important tool when it comes to making decisions about activities such as funding, capital expenditure and investments.
Cash Flow Statement
A financial statement that provides aggregate data regarding all cash inflows a company receives from its ongoing operations and external investment sources. It also includes all cash outflows that pay for business activities and investments during a given period.
A new mortgage for an existing property in which the amount borrowed is greater than the amount of the previous mortgage. The difference is given to the borrower in cash when the loan is closed. Also known as Cash-Out Mortgage.
A Latin word for ‘let the buyer beware’. It means that the property buyer is responsible for doing diligence in examining the property for any issues before it is purchased.
A notice, warning, or word of caution registered on property title by a person or entity who is not the registered owner, claiming to have a proprietary interest (i.e. a right to call for or receive a transfer charge) in a land or in a charge. The registered owner of the land or charge cannot deal with the land of charge without the consent of the cautioner.
A body established by a national Government to regulate currency and monetary policy on a national-international level. In Canada, it is the Bank of Canada. In the United States, it is the Federal Reserve Board.
Certificate of Charge
A legal document of a mortgage registered against a property in the Land Titles System. Every mortgage is recorded with a certificate of charge.
Certificate of Currency
A written document provided by an insurance company to confirm that there is a current and valid insurance policy on a property.
Certificate of Title
The document that details the property description and identifies ownership of the property. The certificate of title also shows whether there are any mortgages or encumbrances on the property. Certificates of title can apply to any type of property that has a title.
Certificate of Occupancy
A certificate provided by the City Building Inspector that a property has been constructed under the authority of the issued building permit and may be occupied.
Cessation of Charge
A discharge of a mortgage registered under the Land Titles Act.
Chain of Title
A real estate records search that lists the successive owners of a home or property. The purpose of a chain of the title search is to ensure the home or property is free to transfer to a new owner.
The search includes tracing the title of ownership back to the original owner and ensuring the title doesn’t contain any liens, judgments, foreclosures or any other encumbrances that would hinder the transfer of title to a new owner.
A rate of how often payment and/or interest rate changes in an adjustable-rate mortgage, or ARM. Also known as the adjustment frequency. The interest rate changes on the reset date for that specific ARM product. The adjustment frequency can significantly add to interest costs over the life of a loan, so borrowers should be aware of this mortgage component prior to closing.
A borrower’s reputation for paying bills and debts based on past behavior.
An interest in land less than the fee simple estate that is registered on the title, such as a mortgage, easement, statutory right of way, claim of lien or judgment. Charges are shown in the Charges, Liens and Interests section on the title. A charge arises by a contract. With a charge, however, there is no transfer of the title or possession, but the land is charged with the payment of a debt or the discharge of an obligation.
Registering a charge on the title provides a means of securing a mortgage or other loan against the property.
A financial institution whose primary role is to accept and safeguard monetary deposits from individuals and organizations, as well as to lend money out.
Another term for personal property. There are two types of chattels: real chattels which are buildings and fixtures of the property, and personal chattels which are things like clothing and furniture. The Real Estate Purchase and Sale contract will detail whether real or personal chattels are included in the sale and contract price.
A mortgage given on personal movable chattels. Usually given as collateral security to a mortgage on real estate. As an example, a chattel mortgage on refrigerators and stoves in an apartment building, or a car or boat. The lender does not hold a lien against the movable chattel, but in the case of default, the ownership of the chattel is conditionally transferred to the lender until the loan has been satisfied.
A title without any type of lien or levy from creditors or other parties that would pose question as to legal ownership. This is when there are no restrictions on the certificate of title that prevent the sale of a property, such as existing mortgages. A clear title is one in which the owner owns the property outright and without any restrictions, such as liens or levies. With a clear title, there is no question as to who owns the property, and there is no chance that anyone can challenge the property owner’s ownership or make any kind of legal claim to the property.
The investment in real estate equities or mortgages on a one-time-only basis. At the “end” of the investment cycle, the asset is sold and the proceeds distributed based on the original investment.
Any loan in which the amount borrowed and any associated finance charges are expected to be repaid in full by a specified date. Such loans are often amortized to ensure the borrower can make the total amount of the payment. Common closed-end loans include consumer loans and mortgages.
A mortgage that cannot be prepaid (by more than the limit set in the terms and conditions), renegotiated or refinanced throughout the mortgage term, without paying breakage costs or prepayment penalty to the lender. Closed mortgage rates can be fixed or variable, and are lower than open mortgage rates.
The conclusion or consummation or a transaction. Closing is one of the final components of the homebuying process in which the sale of the property takes place. A buyer signs a lender agreement for his or her mortgage while the funds transfer to the seller to complete the transaction.
Any item that has been prepaid by the seller which is applied beyond the closing date and will benefit the buyer after the closing date. The amount that has been overpaid by the seller is pro-rated, and a credit is given to the seller as an adjustment on closing.
Examples of such adjustments on the sale of a home are for prepaid realty taxes, prepaid condominium fees (if the property purchased is a condominium), utilities.
The miscellaneous costs associated with loan closing. These typically include a Loan Origination Fee and Discount Points, Appraisal Fee, Legal Fee, other Lender Fees, Escrow and Title Fees, and the first year’s Insurance Premium.
The date upon which all paperwork associated with a mortgage/property sales exchange is finalized and on which the new owner takes possession of the property and the sale becomes final.
A final statement of loan terms and closing costs that the lender must provide to the borrower at least three business days before closing in most transactions that involve a loan. The statement lists the loan terms, projected monthly payments, cash necessary to close the sale, and a detailed accounting of the closing costs. The three-day review period allows the borrower time to review the Closing Disclosure and compare it with the Loan Estimate, which the borrower should have received when he or she applied for the loan.
Cloud on Title
Any encumbrances or claim that affects title to real property that may prevent the transfer of ownership from one party to another. Cloud on title notes that there is doubt related to the condition of the title deed that has to be resolved or cleared before the transfer can take place.
A group of houses sharing a common space (parking, swimming pool and landscaping) such as an apartment block or a series of units.
A party applying with another party for a loan and both are equally responsible for repaying the loan.
Any party that co-signs a promissory note and assumes responsibility for the loan if any of the original loan obligators renege.
A party or individual who co-signs for a mortgage loan.
A form of multiple ownership of the real estate in which a corporation or business trust entity holds title to a property and grants the occupancy rights to – shareholders through proprietary lease or similar arrangements.
A person who signs an agreement to pay off a loan for someone else if that someone else defaults. Co-signing is a technique often used among family and friends to allow a person with good credit to vouch for a person with new credit or bad credit to get a loan. The presence of a co-signer makes lenders more willing to approve loans for high-risk borrowers.
The personal property or other assets that a borrower offers to a lender to secure a loan. As part of the loan agreement, the borrower forfeits the asset to the lender if the borrower stops making payments on the loan. The lender’s claim to the collateral used for a loan is called a lien. Collateral minimizes the risk for lenders.
A type of mortgage product that is re-advanceable which allows a lender to lend a borrower more money as the borrower’s property value increases, without having to refinance their mortgage. The collateral mortgage can reach an amount that is higher than the actual loan, up to the total value of the property. It can even surpass it and reach 125% or 150% of the home’s value. Collateral mortgages cannot be transferred to another lender – not even at the end of the mortgage term.
An asset pledged as security for a loan. If the borrower defaults on the loan payments, the lender may seize the collateral and sell it to recoup some or all of their losses. Loans that are secured by collateral are typically available at substantially lower interest rates than unsecured loans.
A company used by lenders, or creditors, to recover funds that are past due, or from accounts that are in default. Often, a creditor will hire a collection agency after it has made multiple failed attempts to collect its receivables. A lender may outsource the debt-collection activity to a third party (the collection agency), or it may have an internal department or a debt-collection subsidiary that would handle the job.
The process to recover funds that are past due, or from accounts that are in default. Credit card debts, loans, medical bills, mobile phone bills, utility charges and library fees are often sold to collection agencies. Collection agencies attempt to recover past-due debts by contacting the borrower via phone and mail. Collection records can remain on the debtor’s credit report for 6 or 7 years from the last 180 day late payment on the original debt.
A secret, deceitful agreement by two or more parties to defraud others.
Combined Loan-to-Value Ratio
A ratio of all secured loans on a property to the fair market value of a property. For example, a first mortgage of $50,000 and a $20,000 equity line secured against a $100,000 house would have a CLTV ratio of 70%.
A first and second mortgage used concurrently to finance a property.
A mortgage loan secured by a commercial property.
Any property zoned or used solely for business purposes. This may include shopping centers, strip malls, hotels, retail stores, warehouses, restaurants, industrial spaces, farms, office buildings and even vacant lots that have been designated as commercial property by a local government.
Commercial Real Estate
A property used for business purposes. As opposed to residential real estate, which can only be used for housing, commercial real estate is designated by law as property intended to generate income. Income from commercial real estate can come from charging rent to businesses that lease the space or from the property owner running a business there herself.
A fee paid to someone as part of the sale of a particular product. One of the best-known commissions involves the fee paid to a mortgage broker or a real estate agent.
In most cases, this would be a percentage of the amount borrowed in mortgages or the selling price of real estate.
A contract issued by a lender reciting the basic terms of a loan and accepted by the borrower
A fee paid by a borrower to a lender in exchange for a promise to lend money on certain terms for a specified period. Usually charged to extend a loan approval offer for longer than the 30-60 day standard period. “A” lenders do not usually charge these fees.
A document from a lender to a borrower that officially lays out the terms of a loan.
Elements of a property available for use for all tenants or owners such as gardens, lobbies, hallways, libraries, shared laundries, and driveways.
Cost that members of condominium associations and homeowners associations must pay to maintain common areas, such as swimming pools, tennis courts, laundry areas and parking lots. These costs are also referred to as condo fees or homeowners association fees (HOA).
Properties that are similarly sized and have similar features to a subject property. By reviewing comparable properties, buyers and their agents can get an idea of a property’s market value.
Comparative Market Analyses
An estimate of a home’s value based on recently sold, similar properties in the immediate area. It is usually conducted by a real estate agent, with the purpose to determine a reasonable offering price.
Also called compounding interest, is the interest calculated on the initial principal, which also includes all of the accumulated interest of previous periods of a deposit or loan. The rate at which compound interest accrues depends on the frequency of compounding, such that the higher the number of compounding periods, the greater the compound interest. Interest can be compounded on any given frequency schedule, from continuous to daily to annually.
The period between the points when interest is paid or when it is added to the principal. In a mortgage loan, the compounding period is the number of times that unpaid mortgage interest is added to the principal amount of the loan.
Except for variable-rate mortgages, all mortgages in Canada are compounded twice per year, or semi-annually, by law. If the mortgage is to be compounded semi-annually, this means that the mortgage holder can only add interest to the principal balance twice per year. The basic rule is that the higher the number of compounding periods, the greater the amount of compound interest, so when calculating compound interest, the number of compounding periods makes a significant difference.
A method used by lenders to calculate compounding interest. These include:
• S-Simple interest
• A-Compounded annually
• H-Compounded semi-annually
• Q-Compounded quarterly
• M-Compounded monthly
• D-Compounded daily
A statement from a mortgage lender indicating a mortgage will get approved provided specific conditions are met at the time of closing. Conditional loan approval does not guarantee a mortgage will be approved. Rather, it means the lender willing to loan a specific amount of money, provided the applicant meets certain criteria.
A promise by a lender to make a loan if the borrower meets certain requirements. This means the lender is willing to finance the mortgage if certain conditions are met.
Conditional Sales Agreement
An agreement by which it is provided that the title to the goods (other than building materials) remains in the seller until payment in full of the purchase price, possession being given forthwith and-the price usually being payable in installments.
Conditional sales agreements allow the seller to repossess the property if the buyer defaults on payment. Conditional sales agreements are typical in real estate because of the stages involved in mortgage financing—from pre-approval, appraisal, to the final loan. In these contracts, the buyer can generally take possession of and use the property after both parties have signed and agreed on a closing date. The seller, however, generally keeps the deed in their name until financing has come through and the full purchase price is paid.
An act of legislation in Canada that regulates most aspects of condo formation, purchasing, living in, and governance. Each condo document has to be based on the Act. Each province has its own act because housing is a provincial jurisdiction. In Ontario, The Condominium Act 1998 came into effect in May 2001.
A governing body that consists of individual condominium unit owners and that makes decisions regarding the maintenance of a condominium building and its grounds.
The free ownership of a separate amount of space in a multiple occupancy building with proportioned tenancy in common ownership of common elements used jointly with other owners. In general, a higher density type of development in which a resident owns one of many units along with a share of the ground and other common amenities, like a swimming pool. The units are generally attached (unlike traditional single-family detached homes).
A fee paid by all property owners of a condominium complex to cover ongoing maintenance costs. The fee is often based on the size of the condo unit and anticipated annual expenses.
A mortgage that is eligible for purchase or securitization by one of the government-sponsored enterprises such as Fannie Mae, Freddie Mac and Ginnie Mae (US mortgages only). Requirements include size of the loan, type, and age.
A type of short-term loan that is structured to best suit a borrower who is constructing their property rather than purchasing a pre-built property. Construction loans are usually taken out by builders or a homebuyer custom-building their own home. After the construction of the building is complete, the borrower can either refinance the construction loan into a permanent mortgage or obtain a new loan to pay off the construction loan.
Construction to Permanent Loan
A loan used to finance the construction of a home, converted into a permanent loan. When the building of a home is complete, the construction loan converts into a permanent mortgage loan. Another common term for a construction to permanent loan is a single-close loan.
A customer who buys the products or services provided by businesses.
Also known as consumer debt, is a credit extended to consumers for the purchase of goods or services. Most commonly associated with credit cards, consumer credit also includes other lines of credit, including some loans.
Consumer Credit File
The collection of an individual consumer’s debt repayment records, stored at a credit reporting agency (credit bureau). Credit scores are based on consumer credit files and used by lenders to evaluate the probability if a consumer will repay loans in a timely manner as well as the interest rate of the loan.
The debt amount owed by consumers as a result of purchasing goods that are used for individual or household consumption.
Consumer Reporting Act
The Consumer Credit Reporting Act is designed to give consumers the tools necessary to review their personal credit information and to correct inaccurate information.
The Consumer Reporting Act ensures that credit reporting agencies will collect information on, maintain, and report a consumer’s credit and personal information in a responsible manner. The Act also states that a consumer has the right to know what has been reported about the consumer and to whom, and that the consumer has the right to correct any information on these reports that is inaccurate.
A legally binding agreement between two or more parties for a particular purpose. When real property is involved, a dated, written, signed agreement between two or more competent parties to do or not to do a legal act, for a legal consideration, within a specified time.
Contract for Deed
An agreement for the sale of property in which the buyer takes possession while making payments, but the seller holds title until full payment is made. Also called a land contract.
A legal claim against property as a result of a voluntary contract that gives a security interest in property to one of the parties involved. such as a mortgage. One example of such a lien is a mortgage.
A mortgage loan that is not required to be insured as it is less than a statutory percentage of value (80%). A mortgage exceeding 80% is referred to as a ‘High-Ratio’ mortgage and the lender will require insurance for that mortgage.
A specified period of time during which a consumer can change his/her mind and get out of a contract for no reason, with no penalty. Most types of contracts do not have a cooling-off period. In real estate, a cooling-off period exists when buying a home or an investment property, during which either seller or buyer can back out of the contract. The cooling-off period is vital for those borrowers who do not already have pre-approved financing.
According to Section 73 of the Condominium Act, people in Ontario who buy a pre-construction residence directly from a home builder are granted a cooling-off period, during which they can rescind their sales agreement for any reason and essentially walk away from a deal scot-free.
The cooling-off period of 10 days is automatically granted to all pre-construction condo purchases from a builder in Ontario. After those 10 days, the cooling-off period no longer applies and the decision to walk away from a sale can become a legal and financial pain.
An adjustable-rate mortgage that can be converted to a fixed-rate mortgage under specified conditions.
A short-term closed mortgage is an adjustable-rate loan that gives the borrower the option to convert the loan to a fixed-rate mortgage at any time without penalty.
The act of transferring an ownership interest in a property from one party to another. Conveyance also refers to the written instrument, such as a deed or lease, that transfers the legal title of a property from the seller to the buyer.
The legal process that transfers the ownership of the property, and to make sure you understand the process and that it is completed correctly many property buyers enlist the services of a conveyancer.
Cooling Off Period
A specified period of time during which a consumer can change his/her mind and get out of a contract for no reason, with no penalty. Most types of contracts do not have a cooling-off period. In most cases, the contract will be binding.
According to Section 73 of the Condominium Act, people in Ontario who buy a pre-construction residence directly from a home builder are granted a cooling-off period, during which they can rescind their sales agreement for any reason and essentially walk away from a deal scot-free.
The cooling-off period of 10 days is automatically granted to all pre-construction condo purchases from a builder in Ontario. After those 10 days, the cooling-off period no longer applies and the decision to walk away from a sale can become a legal and financial pain.
A loan that allows the borrower to buy into a co-op project.
Cost Approach (To Value)
One of the methods used for the property appraisal. The estimate of value by this approach is reached by estimating the value of the land and adding to this the improvements, less accrued depreciation.
Cost of Borrowing
A finance charge of the dollar amount that a borrower pays to secure and use a loan. It includes the total of interest, loan origination, and other loan-related expenses.
Cost of Living
The total amount of money it takes for a consumer to survive and live comfortably over a set period of time. The monthly cost of living is what it takes for a household to run effectively each month.
The terms and conditions which are in place specifying the accepted use of a block of land or property, for example, whether the owner can use it properly for just residential purposes or commercial uses as well.
A party who promises to be responsible for the repayment of a loan.
A temporary document issued by an insurance company that provides proof of insurance coverage until a final insurance policy can be issued. A cover note features the name of the insured, the insurer, the coverage, duration of the coverage, and what is being covered by the insurance.
In a real estate negotiation, a counter-offer is typically a response by the seller to the buyer’s initial offer. It is usually lower than the initial listing price and higher than the buyer’s offer.
The contractual interest rate stated in the mortgage document.
Credit is a contractual agreement in which a borrower receives something of value now and agrees to repay the lender at a later date usually with interest. Credit is issued to people or companies who want to obtain something now, but who will pay for it later, based on that borrower’s ability to pay for it later. Credit can be used to purchase a new property or to take out a loan. Credit also refers to the creditworthiness or credit history of an individual or company.
A legally binding contract between a party who borrows money and the lender. It is agreed upon by both parties and outlines the terms of repayment, the fees, other costs and all the rules and requirements pertaining to the loan.
Also known as credit reporting agencies, are companies that collect information from creditors and lenders about consumer financial behaviour. That data is used to calculate credit scores and generate consumer credit reports which are used mainly by financial institutions in making lending decisions. The three major credit bureaus are Equifax, TransUnion and Experian (In the USA).
In respect to a lending transaction, the aggregate of all charges against, and the amount paid or payable directly or indirectly by or on behalf of a borrower.
Another term for a credit report. It is a collection of data about a consumer credit history maintained by a credit bureau. A consumer credit file contains basic identifying information, including the consumer’s name, Social Security number, address, and phone number, along with any other previous names, addresses, and phone numbers, consumer’s current and former employers. The credit file shows what types of debt the consumer has, which may include credit cards, installment loans, mortgages, who have inquired about the consumer’s credit in the past two years and when they inquired, and it contains any negative credit information such as bankruptcies, liens, judgments, and past due accounts that have been sent to collections.
Credit File Freeze
Consumers can request that the credit bureaus freeze their credit reports. This freeze stops new credit from being issued in the consumer’s name by blocking creditors, lenders, insurers and other companies from accessing the consumer’s credit data. In some cases, a $10 fee for each credit bureau is required to process the file freeze. The freeze can also be temporarily or permanently undone for an additional fee.
A service available to consumers through the credit bureaus in which consumers lock down their credit, preventing new accounts from being opened. It is a useful tool in cases where identity theft has been detected or is suspected. The credit bureaus charge fees for establishing credit freezes unless identity theft has occurred. They also charge for “thawing” the credit freeze, should a consumer decide to open a new account.
A record of a consumer’s ability to repay debts and demonstrated responsibility in repaying debts. The credit history is a main component of a consumer’s credit report. The credit history includes all credit card applications the consumer has made, any personal loans the consumer has, as well as details of the consumer’s repayment history with regards to the consumer’s bills and other debts. The credit history is assessed by a lender to determine how likely the consumer is to responsibly repay the loan.
A request by an institution for credit report information from a credit reporting agency. A credit inquiry is created when a lender pulls someone’s credit record. It creates a record in a credit report of each time a lender or a potential lender obtains a copy of the consumer’s credit report. Credit inquiries, especially multiple inquiries, may negatively impact credit scores. See hard inquiry and soft inquiry.
A type of insurance policy purchased by a borrower that pays off one or more existing debts in the event of a death, disability, or unemployment.
Credit Life Insurance
A type of insurance policy that pays off a borrower’s loan if the borrower dies before repaying the debt in full.
The maximum amount a borrower can use at any one time, typically applies to equity or line of credit loans.
A flexible loan option offered by financial institutions to individuals and corporate entities. A credit line always has a credit limit, which is the highest amount of credit the bank has extended to a particular client. The credit limit is based on the borrower’s income, credit history and other factors.
The market where fixed-income securities are traded. Among these are mortgage-backed securities, pools of mortgages that are sold to investors, such as pension plans and hedge funds.
The type of accounts that make up a consumer’s credit report. The different types of credit that might be part of a consumer’s credit mix include credit cards, revolving loans, student loans, auto loans, and mortgages. Credit mix is one of the five factors used in determining a credit score. Having a broad credit mix is good for the credit score. For example, FICO credit score considers credit mix to be worth 10 percent of the score.
Credit fraud in which a customer of a bank uses his or her name and information to obtain high-value loans with no intention of paying them back. Also known as first-party fraud.
An agreement where a party becomes legally responsible for paying back borrowed money.
A measure of the creditworthiness of a borrower. Credit ratings are calculated by the credit bureaus, based on the borrower’s past payment behaviour, income, employment and other factors that serve as a general predictor of ability and propensity to repay debts.
An act of restoring or correcting a poor credit score. Repairing credit standing may be as simple as disputing mistakes information with the credit agencies. Identity theft and the damage incurred may require extensive credit repair work.
A summary of one’s credit history. Produced by credit reporting agencies, credit report reveals the borrower’s credit history and current status of obligations. Credit reports include records on: consumer name, current and former addresses, employment, credit and loan histories, payment histories, inquiries, collection records, and public records such as bankruptcy filings, judgements and tax liens.
Potential creditors and lenders use credit reports as part of their decision-making process to decide whether to extend borrowers credit — and at what terms. Others, such as potential employers or landlords, may also access a person’s credit reports to help them decide whether to offer them a job or a lease. The credit reports may also be reviewed for insurance purposes or when someone applies for utilities or mobile phone services.
Credit Reporting Agency
See Credit Bureaus.
The possibility of a loss resulting from a borrower’s failure to repay a loan or meet contractual obligations. The credit risk is usually assessed by a combination of the borrower’s income level, the loan amount, and the borrower’s credit rating received from the credit reporting agency.
Borrowers considered to be a low credit risk are charged lower interest rates.
A numerical evaluation of the consumer’s credit history used by lenders to assess the credit risk a consumer poses and the interest rate they will offer if they agree to lend the consumer money. A credit score is based on a consumer’s credit report. It is calculated using complex mathematical formulas that look at the consumer’s most current payment history, debts, credit history, inquiries and other factors from the consumer’s credit report. Credit scores usually range from 300-850, the higher the score, the better. There are a few slightly different credit scoring formulas used by bankers, lenders, creditors, insurers and retailers. Each score can vary somewhat in how it evaluates the credit data.
A system that assesses a borrower on several items, assigning points that are used to determine the borrower’s creditworthiness.
Credit scoring involves the quantification of a variety of factors in a borrower’s background, including a history of default, the current amount of debt, and the length of time that the borrower has made purchases on credit, payment history and new credits.
A type of not-for-profit financial institution controlled by its members, the people who deposit money into it. While traditional banks are run by shareholders whose goal is to maximize profits, credit unions return all profits to its members in the form of more favorable interest rates. Because of this, credit unions run considerably smaller operations and may serve more limited needs than traditional banks.
A ratio or the percentage of a borrower’s total available credit that is currently being utilized. The lenders use credit utilization ratio to determine a borrower’s creditworthiness and is a factor that is used to determine the borrower’s credit score.
A person or company of legal nature that is owed money.
The ability of a potential borrower to repay a loan or meet contractual obligations. The borrower’s creditworthiness is what creditors look at to determine the probability of default before they approve any new credit to the borrower.
The act of using an asset that is collateral for an initial loan as collateral for a second loan. The loans can be of the same type—a second mortgage is considered cross-collateralization—but cross-collateralization also includes using other assets, such as a vehicle, to secure another sort of financing, such as a credit card.
Cross Default Clause
Mutual clauses in two or more mortgages which state that a default under one mortgage constitutes a default under the other(s).
The interest amounts accrued daily on the account balance. The rate of the daily interest is derived from the annual interest rate divided by 356. Lenders typically calculate the interest charges on a borrower’s loan daily regardless of the frequency of the loan repayments. This means that the interest calculations can vary depending on the balance of the account each day.
The removal of funds from a financial account.
The amount of money owed.
A process of combining debts into one loan or repayment plan. The goal of debt consolidation is to lower the monthly payment and/or the interest rate of a borrower’s total debt.
For example, if a borrower has several high-interest credit card debts and other loans outstanding, the borrower may combine these debts into a second mortgage or home equity loan, making one payment to the second mortgage holder or lender.
A type of credit counseling that focuses specifically on helping people with debt issues. Debt counseling can help people with the professional guidance they need to manage debt without having to declare bankruptcy.
Debt To Available Credit
Also called credit utilization ratio or debt-to-limit ratio, refers to how much of a borrower’s available credit has been used compared against the amount of credit still available. The more available credit is used, the less credit is available. A higher debt to available credit ratio means a lower credit score. Lenders consider credit utilization ratio among the many factors when deciding to offer credit and how much.
Debt to Income Ratio
A measure that compares an individual’s monthly debt payment to their monthly gross income. Expressed as a percentage, a debt-to-income ratio is calculated by dividing total recurring monthly debt by monthly gross income. Lenders prefer to see a debt-to-income ratio smaller than 36%, with no more than 28% of that debt going towards servicing your mortgage.
Also known by lenders as the back-end ratio, the debt-to-income ratio impacts a person’s credit score and the types of lenders willing to lend a borrower money.
Debt to Limit Ratio
See Debt to Available-Credit.
Debt Service Ratio (DSR)
A metric used by lenders to determine if a borrower has the capacity to make payments on a loan or mortgage. The debt ratio is calculated by dividing the monthly debt by monthly income (before taxes). There are two ratios used by the lenders —gross debt servicing (GDS) and total debt servicing (TDS). The gross debt service ratio (GDS) considers a borrower’s monthly carrying costs and the total debt service ratio (TDS) includes all of the borrower’s current debt commitments.
A person or company that owes money to a creditor.
Declining Life Insurance
A type of insurance policy with a decreasing death benefit over time, often used to insure mortgage debt. As the amount owed on the mortgage decreases, so does the size of the death benefit, and insurance premiums.
A legal document that shows who has the legal right to possess a property and states whether there are any agreements or obligations on the property.
Deed in Lieu of Foreclosure
A document that transfers the title of a property from the property owner to their lender in exchange for being relieved of the mortgage debt.
Deed in Lieu of Foreclosure Agreement
An agreement between a homeowner behind on mortgage payments with their lender that relinquishes all homeownership rights to the mortgage lender.
Deed of Reconveyance
A document that transfers the title of the real property to the borrower from the lender once the borrower has fully paid the debt. This document also becomes a part of public records. Also known as reconveyance deed and recon.
Deed of Trust
An arrangement among three parties: the borrower, the lender, and an impartial trustee to hold the legal title on the property until the borrower pays it off. In exchange for a loan of money from the lender, the borrower places legal title to real property in the hands of the trustee who holds it for the benefit of the lender, named in the deed as the beneficiary.
The trustee is usually an entity such as a title company with “power of sale” if the borrower defaults on the loan payment.
Failure to honour a contract or agreement (usually to pay a debt). If a borrower does not pay the minimum home loan repayment by the due date, then the borrower will be in default. If the borrower does not make loan repayments and remains in default the lender may take legal action to repossess the property. Defaults can also be listed against the borrower’s name for failure to pay bills such as a phone or electricity bill. These then show up on the borrower’s credit history and can impair the borrower’s credit when it comes time to apply for a loan. Defaults can show up on the borrower’s credit history and can impair the borrower’s credit and chances to obtain a new loan.
An arrangement that allows interest payments on a loan to be deferred during a specific period of time. A deferred interest mortgage allows borrowers to defer paying some or all of a loan’s interest for a specified time.
In the retail sector, these are often advertised as charging “no interest until” a certain date. After that date, the interest that has been accruing since the purchase date is charged to the account.
An agreement between a lender and a borrower to temporarily suspend debt payments. Young people with large student loan debts and low or no income are frequently granted loan deferments. Under a student loan deferment, interest is frozen and is not added to the balance. Forbearance is a similar suspension of debt payments, although interest continues to accrue on the principal balance.
Any amount one still owes on a contract after the creditor sells the collateral and applies the proceeds to the unpaid obligation.
Any account past due. In the credit card industry, a card issuer usually will not report an account as delinquent until at least 30 days have gone past the due date during which the cardholder has not made at least a minimum payment.
A mortgage loan for which the borrower has failed to make payments as required in the mortgage documents. A mortgage becomes delinquent when the borrower doesn’t make the required payments. If the borrower continues to fall behind, the lender may foreclose on the property, taking it back from the borrower.
A situation in which a borrower misses due date for a single scheduled payment for a form of financing. For example, if the borrower does not make the mortgage repayments on time then there is a risk of defaulting on the loan due to delinquency which can eventually lead to a notice of default, and later a Power of Sale or Foreclosure. Any delinquency impacts the borrower’s credit score and chances of getting a new loan.
A loan where the balance must be repaid upon request.
Demand for Payment
A letter from a creditor or collection agency outlining a debt obligation, including the amount owed, how and when the debt should be repaid and the consequences of non-payment.
The measure of loss in value of a property due to all causes, including physical deterioration, functional and economic obsolescence.
Negative marks in someone’s credit history. Derogatory information can damage someone’s credit score and prevent one from taking out a new loan. It can also stay on a credit report for as long as 10 years. For example, a late payment, collection or bankruptcy is a derogatory mark.
A financial transaction in which one person or company withdraws funds from another person’s bank account.
The fees incurred during the conveyancing process of purchasing a new real estate property. Examples of these fees are title search fees and costs paid to government authorities.
This term is used for persons or entities who have previously been declared bankrupt but have had their bankruptcy discharged, this typically occurs three years and one day after someone filed for bankruptcy personally.
The administration and other fees used to cover the costs incurred by the lender to process the borrower’s loan. The discharge fees are paid at the end of the loan term when a borrower pays the amount in full before the end of the agreed term.
Discharge of Mortgage
A document executed by the mortgagee and given to the mortgagor when a mortgage loan has been repaid in full before, at, or after the maturity date, releasing them from all obligations and covenants contained in the mortgage.
A statement listing potential defects to a property, such as the possible existence of lead paint or radon.
A type of expense that a household or business can be without. Discretionary expenses are often defined as nonessential spending, which means a household or business is still able to run even if all discretionary consumer spending stops. These are the nice-to-have expenses in the budget, such as entertainment, travelling or dining out. ws funds from another person’s bank account.
The amount of an individual’s income that is left for spending, investing, or saving after paying taxes and paying for personal necessities, such as food, shelter, and clothing. Discretionary income includes money spent on luxury items, vacations, and nonessential goods and services.
A business that allows clients to buy and sell securities but does not provide advice, research, planning or other investment services. Clients who use discount brokerages usually have little to no interaction with a real broker. Discount brokerages usually charge lower fees.
Also known as a discounted variable rate, is a loan where the interest rate is set a certain amount below the lender’s standard variable rate (SVR) for either a set period or entire term of the mortgage. The SVR is an interest rate set by the lender, which it can raise or lower by any amount and at any time. If the interest rate rises, the monthly mortgage payments would rise but a borrower would be paying more interest, rather than repaying more of the money borrowed.
A measure of interest: 1 point is 1% of the total amount of the loan. Discount points help homebuyers to reduce their monthly mortgage payments and interest rates. Homebuyers may pay points upfront, a type of buy-down, to decrease the interest rate of a mortgage and mortgage payment.
The amount a person has leftover from the wages and other income once all of the person’s bills and expenses have been paid. It does not include any lifestyle or entertainment expenses but is the amount the lender will look at to determine how much someone’s has remaining from the total income each month to service a loan.
The process of submitting a request to the credit bureaus to have an error on a person’s credit report corrected. Disputes are investigated and updates are made to the credit report over 30 days. The credit bureaus usually sent a copy of the updated credit report if the dispute is accepted, or if the dispute is rejected, a letter explaining why the credit bureau could not verify the correction,
Any property that suffers a reduction in its market price due to the risk of foreclosure or repossession. A distressed property is usually a result of a homeowner’s inability to pay mortgage payments and/or tax bills on the property. It is common for a distressed property to be sold below market value.
The deposit plus any other money a real estate property buyer sets aside to pay towards the purchase price of the property.
A payment required by a builder at each of the construction stages of a home or building. With a construction loan, the builder or borrower pays only interest on the amount of the drawdown payment, and not the full amount of the loan. This also applies to non-construction loans when they are used to pay the vendor for the property as per the agreed-upon price.
On a line of credit, the draw period is the fixed time when a borrower can make withdrawals from the account. After the draw period expires, the borrower can renew the credit line or may be required to pay the outstanding balance in full, or overtime.
Situation when the same real estate agent represents both the seller and the buyer. In most cases, it is not a good idea for one agent to represent both parties in a real estate transaction. The listing agent’s job is to sell a home at the highest possible price, while the buyer’s agent aims to negotiate the lowest price for the buyer. In this case, the agent and his client’s interests are not aligned.
Buyers and sellers should be sure to understand all potential conflicts of interest before entering into a dual agency relationship.
A stipulation in a mortgage or deed of trust, requiring a borrower to pay the entire loan balance upon the sale of the property for which a mortgage is being secured. Banks and mortgage lenders use due-on-sale clauses to prevent the buyer of a property from assuming the current mortgage at the original interest rate. Buyers of a property with a due-on-sale clause in the mortgage must negotiate a new interest rate.
Early Mortgage Renewal
Situation when a lender allows a borrower to renew the mortgage and stay with them anytime in the final 120 days of the borrower’s current mortgage term.
Early Termination (or Repayment) Fees
Fees charged when a borrower pays out the loan early within a designated time period specified by the lender. Also known as early exit fees or deferred establishment fees.
After-tax net income or the amount of profit received by an individual or a company during a specific period.
A sum of money put up by the buyer when an offer on a home or property is made. The purpose of earnest money is as a token of good faith, a symbol that the buyer is seriously pursuing the purchase.
A right for one property owner to enter another’s without permission. An easement grants use of a part of the property but does not transfer interest. As such, the original property owner is still responsible for the taxes on the part of the property. An easement runs with the land and binds all subsequent owners. For an easement to exist, the properties do not need to be adjoining. An example of easement is a Right of Way, when the owner grants access rights of another to pass over the land of another.
The lender’s estimate of its loss resulting from a borrower making a change to their loan during it’s fixed rate period such as switching to a variable rate loan prior to the fixed rate period expiring.
The estimated period over which it is anticipated that a property may profitably by utilized.
Electronic Funds Transfer (EFT)
A system of transferring money electronically over a computerized network from one bank account directly to another. The most widely-used EFT programs are direct deposit and E-Transfer.
An easily accessible savings set aside for unexpected expenses.
A score range from 150 to 934 provided by the credit rating agency TransUnion to rate people’s credit. A score of 150 represents the worst credit possible, whereas a credit score of 934 represents the best credit possible. To qualify for a good interest rate, lenders typically require a score of 680 or higher. A credit score of less than 500 is considered extremely poor and that person most likely would not qualify for a loan.
Empirica is a score that TransUnion only provides to lenders. Empirica is based on FICO.
A form of employee compensation not in the form of wages, salaries, commissions, or other cash payments.
An unemployment insurance program in Canada that allows individuals who have recently lost a job, or individuals who are unable to work because of illness or who are caring for a young child or a seriously ill family member, to receive temporary financial assistance.
Anything that is a liability or charge on a property. For example, it can include an easement that runs through the property, or a charge stating the property owner may choose to repaint their boundary fence from an approved colour list.
The final, long- term mortgage on a property that a person borrows for repaying a short -term construction loan or other interim loans. End loans are offered to borrowers with short-term loans, especially the construction-based loans.
One of the three national credit bureaus (also known as credit reporting agencies) that collects and provides consumer financial records.
The fair market value of a home minus the unpaid mortgage principal and liens. Also called the lendable value or net value.
Collective term for the various classes of share capital or stock in a company. It also embraces earned and capital surplus items found on a typical balance sheet.
Equity of Redemption
The right of the mortgagor to have title to his property restored to him when he has repaid the mortgage in full.
Equity Take Out Mortgage
A mortgage loan based on the equity in the property and obtained through either refinancing an existing mortgage or getting a second mortgage added on. Because it is tied to property’s equity, the property owner must have equity in the property, after its fair market value and other mortgages are taken into consideration. An equity take out mortgage may contain a fixed rate and a fixed sum borrowed, or may be a variable rate and may be arranged as a line of credit, where funds are withdrawn at the discretion of the borrower.
A mortgage that has a claim solely on the equity of redemption and not to the title of the property itself.
A legal concept describing a financial instrument whereby an asset or escrow money is held by a third party on behalf of two other parties that are in the process of completing a transaction.
When a borrower refinances a mortgage, for example, the loan application, title and paperwork may have to go through an escrow agent until the borrower’s income and details have been verified for approval of the loan.
A lender-established account through which a borrower makes payments and a lender takes deductions to cover the costs of the following: mortgage insurance premiums, property tax payments, and/or casualty insurance premiums. Escrow accounts are customary in the East, especially where the LTV of an original loan exceeds 80%. In these situations, borrow equity is not high and if foreclosure became necessary, the lender would not want to recoup the cost of back tax payment. Sometimes called an “impound account.”
Someone who facilitates the real estate transactions from the time the contract is signed through the close of escrow (these can include inspections, earnest money agreements, disclosures, lender issues, and title and escrow issues).
All of a person’s possessions, property and debts which will be left behind when the person dies.
A signed statement of facts that cannot later be contradicted by the signer. It is used in mortgage negotiations to establish facts and financial obligations, such as outstanding amounts due that can affect the settlement of a loan. The assessments and payments outlined in the estoppel certificate are incorporated into the amounts due at closing.
For example, an estoppel certificate may be used to assess the existing terms of lease obligations of existing tenants in a tenant-occupied property transaction. The content of an estoppel certificate can vary widely, but it will generally ask the tenants for the following information:
- A copy of the existing lease
- Date of and the expiration of the existing lease
- Names of tenants
- Current monthly rent
- Security deposit
- Parking and storage allotment
- Confirmation of standard leasing terms
Once all information is gathered on the estoppel certificate, both the tenant and landlord sign the certificate to attest to its accuracy.
Exchange of Contracts
The point at which a property transaction becomes legally binding. This is the final step in a real estate property purchase. Once each party, buyer and vendor, has signed the contracts and they have been exchanged, the contract becomes legally binding.
Exclusive Agency Listing
An agreement between a seller and a real estate firm or agent granting the firm or agent the right to be the only firm or agent to market and sell a property, except the seller retains the right to market and sell the home to a buyer without having to pay a commission to the listing agent, if the seller finds the buyer independently of the agent or firm.
This is different from an “exclusive right of sale” listing, in which the listing broker receives a commission from the seller regardless of who brings the buyer into the purchase.
An amount of money spent for a certain purpose or the act of spending that money.
The costs people incur for goods and services. Expenses are often categorized as fixed, variable, and periodic. Fixed expenses are those that occur each month in a regular amount, such as rent, car payments, and mortgage payments. Variable expenses are those that change from one time period to the next, such as food, clothing, gasoline, and entertainment. Periodic expenses are those that occur several times a year, such as car insurance and life insurance payments.
One of the three the USA national credit bureaus that collects and provides consumer financial records. Experian operates the ConsumerInfo, FreeCreditScore and CreditExpert brands.
The set number of years that a record will remain on a consumer’s credit report. Most negative records stay on the consumer’s credit report for 6-10 years. The shortest expiration term is two years for inquiry records. The longest expiration term is 15 years for paid tax liens or indefinitely for unpaid tax liens. Positive information can also stay on the consumer credit report indefinitely.
Fair Market Value
The price that a willing buyer will pay to an unrelated but willing seller. The fair market value is the amount a seller may expect to receive from a sale of the seller’s real estate, or the price a buyer may expect to pay when purchasing a certain property.
A term that refers to real estate or land ownership. Fee simple is the highest form of property ownership. The owner of the property has full and irrevocable ownership of the land and any buildings on that land. Also known as fee simple absolute.
The name of the data analytics company that pioneered the concept of credit scoring through its signature three-digit FICO score. FICO was founded in 1956 by engineer Bill Fair and mathematician Earl Isaac.
A type of credit score created by the Fair Isaac Corporation. FICO® Scores are used by many lenders as a decision-making tool on how likely a borrower is to repay the loan on time. FICO scores range from 300 to 850. A FICO® Score of 670 or above is considered a good credit score, while a score of 800 or above is considered exceptional.
A legal relationship of confidence that gives one the right to act on behalf of another person or entity (the principal). A fiduciary relationship gives rise to specific duties of loyalty, disclosure, good faith, and due care. In a real estate transaction, real estate agents are in a fiduciary relationship with their clients. When a buyer or seller signs an agency agreement, he or she puts trust in the agent to handle the transaction and keep his or her best interests in mind.
The total cost of using a credit. Besides interest charges, the finance charge may include other costs such as cash-advance fees.
A fee or commission paid by a lender or borrower to a broker for respectively, referring to or obtaining a mortgage loan.
A lender’s promise to lend money to a specific borrower on specified terms at a certain time.
Primary claim by the lender for satisfaction of outstanding debt. A first mortgage creates a first lien oh the property.
A primary lien on a property. As a primary loan that pays for the property, the loan has priority over all other liens or claims on a property in the event of default. For example, a borrower defaults on a loan secured by a property worth $100,000 net of sale costs. The property has a first mortgage with a balance of $90,000 and a second mortgage with a balance of $15,000. The first mortgage lender can collect $90,000 plus any unpaid interest and foreclosure costs. The second mortgage lender can collect only what is left of the $100,000.
First-Time Home Buyer Tax Credit
A rebate ($750) for qualifying first-time homebuyers in Canada. To receive first-time home buyer rebate, the homebuyer must claim it with the homebuyers’s income tax return under line 369.
Expenses that don’t change from month to month: any bill that is the same amount every month, like rent, mortgage payments or car loan payments.
Periodic payment on a loan whose sum does not vary.
Fixed Interest Rate
An unchanging rate charged on a liability, such as a loan or mortgage. The interest rate charged on a borrower’s home loan is locked in for a certain period of time. The interest rate will not change during the fixed interest rate term which is often between one year and 10 years.
Fixed-Rate Closed Mortgage
A mortgage with a fixed interest rate which cannot be pay off before the end of the mortgage term. With fixed interest rate mortgages, the amount of regular mortgage payment is constant throughout the mortgage term.
Fixed-Rate Open Mortgage
A mortgage with a fixed interest rate which can be pay off before the end of the mortgage term. With fixed interest rate mortgages, the amount of regular mortgage payment is constant throughout the mortgage term.
A home equity line of credit financing option that allows borrowers to specify the payments and interest on a portion of their balance. This can be done a few times during the life of the loan, usually for an additional fee.
Flat Interest Rate
An interest rate that is calculated from the original loan amount throughout the term of the loan.
An all-inclusive monthly payment that is calculated to include principal, interest and taxes. Under this system there is no specific breakdown as to the amounts of the principal, interest and taxes.
A necessary expense in a budget that does not have a set monthly cost. The flexible expense varies from month to month. Examples are groceries, utilities, and gas.
An increase or decrease of the interest rate with changes in market conditions or with an index. Floating rates are also called variable rates. One of the advantages of floating rates is that interest rates may float down, thus lowering the borrower’s monthly payments. The key disadvantage is that the rate may float upward and increase the borrower’s monthly payments.
A mortgage interest rate lock with an option to reduce the rate if market interest rates decline during the lock period. Also called a cap. Borrowers are protected against a rate increase while the float down option allows them to take advantage of a rate drop during the lock period.
The borrower pays a fee for the flexibility of the float down option. Float-downs vary widely in terms of how often the borrower can exercise (usually only once), and exactly when the borrower can exercise.
A type of property insurance that covers a property for losses sustained by water damage specifically due to flooding caused by heavy or prolonged rain, melting snow, coastal storm surges or blocked storm drainage systems. For a financed property, the lender usually requires the borrower to purchase flood insurance for the loan to be approved.
A portion of a mortgage loan that may be funded upon conditions less stringent than those required for funding the full amount. For example, the floor loan, equal to perhaps 50 percent of the full amount, may be funded upon completion of construction without occupancy requirements, but substantial occupancy of the building may be required for funding the full amount of the loan.
An agreement between a lender and borrower to temporarily suspend debt payments. In the mortgage context, it is a form of mortgage repayment relief granted by the lender or creditor in lieu of forcing a property into power of sale or foreclosure. The borrower must demonstrate the cause for repayment postponement, such as financial difficulties associated with a major illness or the loss of a job. For student loans, forbearance postpones payments under certain hardship conditions. Interest continues to accrue on the principal balance during the forbearance period.
A legal action by a lender to take possession of a mortgaged property as a result of the borrower’s failure to make mortgage payments.
The legal process that allows a lender to recover the amount owed on a defaulted mortgage loan by taking ownership of and selling the mortgaged property. Foreclosure lets the lender sell or take back the mortgaged property after obtaining a court’s permission.
The approval given once the lender has made all the necessary checks and review of a borrower’s application. Once the borrower receives formal approval of the loan the borrower can proceed with settlement.
The intentional act of using false or misleading information by an individual for personal or financial gain.
A notice that is placed on someone’s credit report that alerts credit card companies and others who may extend the person’s credit that the person may have been a victim of fraud, including identity theft. Fraud alerts are free and usually stay for 90-day on the credit reports. This 90-day alert notifies potential creditors that the person’s identity may have been stolen and suggests that they take extra steps to confirm the person’s identity before opening a new account. If it turns out that the person’s identity has been stolen, the person can request an extended 7-year alert by providing documentation of the crime (such as a police report). There is also a special 1-year fraud alert available for military personnel on activity duty.
Free and Clear
A phrase describing the situation of a real property being completely paid off and no creditor has a claim on it.
A type of title. It is the common ownership of real property, or land, and all immovable structures attached to such land. It is in contrast to a leasehold: in which the property reverts to the owner of the land after the lease period has expired. For an estate to be a freehold, it must possess two qualities: immobility (property must be land or some interest issuing out of or annexed to land) and ownership of it must be of an indeterminate duration. If the time of ownership can be fixed and determined, it cannot be a freehold. It is “An estate in land held in fee simple, fee tail or for term of life.”
Freehold gives the property owner complete control and ownership for as long as the owner owns it. While the land or property is mortgaged it is partially owned by the lender, and at the end of the mortgage term, the owner will have freehold over the property with no obligations remaining.
A real estate property that stands independently of others.
Front-End- Ratio or Front Ratio
Also known as the mortgage-to-income ratio, is a ratio that indicates what portion of an individual’s income is allocated to mortgage payments. It is calculated by dividing a borrower’s anticipated monthly mortgage payment by the borrower’s monthly gross income. The general rule is that the front ratio should not exceed 28%.
The Financial Services Regulatory Authority of Ontario (FSRA) is a regulatory agency of the Ministry of Finance that assumed regulatory duties of the Financial Services Commission of Ontario (FSCO) and the Deposit Insurance Corporation of Ontario (DICO) effective June 8, 2019.
It regulates insurance, pension plans, loan and trust companies, credit unions, caisses populaires, mortgage brokering, and co-operative corporations in Ontario, and service providers who invoice auto insurers for statutory accident benefits claims.
Fully Amortizing Payment
The monthly mortgage payment which, if maintained unchanged through the remaining life of the loan at the then-existing interest rate, will pay off the loan over the remaining life.
Fully Indexed Interest Rate
A variable interest rate calculated by adding a margin to a specified index interest rate. Usually, initial interest rates on ARMs are below the fully indexed rate. If the index does not change from its initial level after the initial rate period ends the interest rate will rise to the fully indexed rate after a period determined by the interest rate increase cap. For example, if the initial rate is 4% for 1 year, the fully indexed rate 7%, and the rate adjusts every year subject to a 1% rate increase cap, the 7% rate will be reached at the end of the third year.
Index interest rates can be based on the prime rate or various treasury bill and note rates. The margin rate is usually determined by the lender and based on the borrower’s credit quality.
Full Doc Loan
The common type of loans used for financing a real estate property purchase. Full Documentation Loan requires the borrower’s income and assets verification.
A legal process in which a creditor receives legal permission to take a portion of your assets (bank account, salary, etc) to repay a delinquent debt.
CMHC alternative in the Canadian Mortgage Market place. GE Capital like CMHC provides banks/lenders with mortgage insurance. In the event of default or foreclosure GE Capital assumes responsibility of the property and reimburses the bank/lender the entire mortgage amount. This insurance is required generally when the borrower has less than 25% equity or down payment. This insurance is paid by the property owner in advance but usually added to the mortgage amount. See also CMHC.
The largest private mortgage insurance service provider in Canada.
A letter explicitly stating that money received from a friend or relative is a gift. Usually used by a borrower to obtain a mortgage loan. In the case where the mortgage applicants cannot come up with the full downpayment for a mortgage from their resources, they can receive a gift usually from an immediate family member to assist them. This is called a gifted downpayment. If the downpayment for a mortgage is gifted in full or in part, a gift letter is required to prove the authenticity of the gift.
A term used when referring to all the fees and charges that a property owner will pay to the government when purchasing a property, such as property land transfer tax and others.
A set length of time after the due date during which payment may be made without penalty. A grace period is commonly included in mortgage loan and insurance contracts. Grace periods apply only to mortgages on which interest is calculated monthly. Simple interest mortgages do not have a grace period because interest accrues daily. If a loan or other agreement has a grace period, its length of time will be noted in the contract.
Gross Debt Service Ratio (GDS)
The ratio of an amount equal to the acceptable mortgage charges to an amount equal to the effective gross annual income of the borrower. It is one of the mathematical calculations used by lenders to determine a borrower’s capacity to repay a mortgage. It takes into account the mortgage payments, property taxes, approximate heating costs, and 50% of any maintenance fees, and this sum is then divided by the gross income of the applicants. Ratios up to 32 % are acceptable by the lenders in Canada and up to 28% in the USA.
Also known as gross profit, pre-tax income or before-tax income — measures total income and revenue from all sources. Gross income has slightly different meanings for companies and individuals. For companies, gross income is total revenue minus the cost of goods sold. For individuals, it means total income before tax deductions and tax charges.
A type of lease that includes all expenses attributable to the real estate are paid by the landlord. These expenses could include taxes, insurance, utilities, and any other charges that might be added to the final lease cost. The gross leases are most common in multi-tenant commercial buildings.
Gross Leasable Area
The total floor area designed for tenant occupancy and exclusive use and is that area on which tenants pay rent. Gross leasable area is usually measured from the centre line of joint partitions and outside wall faces. The rentable area of a floor is fixed for the life of a building and is not affected by changes in corridor sizes or configuration
The amount of the flat rent stipulated in a lease. The gross rent is specific for gross rent leases and includes net rent and property expenses like property tax, insurance, utilities, maintenance and any other charges that might be added to the final lease cost. Gross rent leases are fairly flexible and can be customized to suit both, the landlord and the tenant. Gross rent leases are common in commercial real estate.
Gross Rental Yield
A measure of the gross rental income generated by a property as a percentage of its acquisition cost or purchase price. The gross rental yield on the investment property is used to compare the investment return. To calculate the gross rental yield: divide the rental income received in a year by the purchase price that was paid for the property. For example, if the yearly rent on the investment property is $18,200 and the median house price for the area is $509,250 then the gross rental yield will be 3.57%.
A good and service sales tax that applies in all Canadian provinces charged at 5%. The GST is paid by consumers, but it is remitted to the government by the businesses selling the goods and services.
A formal and legal promise of fulfilling certain terms and conditions such as being a guarantor on a home loan.
A person or entity that agrees to be responsible for another’s debt or performance under a contract if the other fails to pay or perform.
A mortgage guaranteed by a third party, often a government agency that will assume the debt obligation for the loan if the borrower defaults. The value of the real estate property secures the mortgage. If the borrower defaults, the lender can file a claim against the guarantor.
Also called a hard pull, is a type of credit check done to determine an applicant’s creditworthiness. It results when a consumer applies for a credit, such as a car loan, credit card or mortgage. The pull on the applicant’s credit history can lower their credit score. An inquiry would show up as a hard pull only if the consumer-initiated it by applying for credit. Hard inquiries remain on the credit report for 2 years but are only included in the consumer’s credit score for the first 12 months.
Hard Money Loan
A mortgage of last resort for borrowers who ca not obtain financing in the standard market due to poor credit.
Harmonized Sales Tax (HST)
A consumption tax in Canada. It is used in provinces where both the federal goods and services tax (GST) and the regional provincial sales tax (PST) have been combined into a single value-added sales tax.
The harmonized sales tax (HST) applies to newly constructed homes or substantially renovated homes but does not apply to resale homes. Depending on which province the homebuyer lives in, it can be GST (which stands for federal goods and service) or HST. Buyers of new homes may receive a rebate of up to the certain limit of the provincial portion of the HST.
A factor that increases the likelihood of loss through some peril.
A property insurance policy that provides coverage for damage to the structure of a property. Some home insurance policies include hazard insurance, but it often must be purchased separately. As long as the specific hazard is covered within the policy, the property owner will get compensation to cover the cost of any damage incurred.
An abbreviation of Home Equity Line of Credit, a loan that leverages the equity in the owner’s home. The HELOC functions like a revolving line of credit where the property owner can choose when and how much money to withdraw, so long as the amount does not exceed more than 65% of the value of the home.
The interest charged on a home equity loan is often higher than a standard variable rate. A HELOC may have a minimum monthly payment requirement (often “interest-only”). However, the debtor may make a repayment of any amount ranging from the minimum payment to the drawn amount plus interest.
High Ratio Mortgage
A mortgage in which a borrower places a down payment of less than 20% of the purchase price on a home. Another way of phrasing a high ratio mortgage is one with a loan to value ratio of more than 80%. A mortgage with more than a 20% down payment is called a conventional mortgage.
High Yield Mortgage
A mortgage with a higher than the average interest rate. The yield refers to the compound interest charged on the mortgage, also known as the Annual Percentage Rate (APR). The yield is the interest paid to the mortgage holder, as interest, and is income for the mortgage holder.
The withholding of or no advancement of a portion of a mortgage loan to maintain adequate security, pending achievement of a performance requirement, or as protection against liens.
An amount of money that a prospective buyer pays to the seller as an “expression of interest” in purchasing a property. The holding deposit is a way for the buyer to show that they are serious about wanting to buy the property. The holding deposit does not secure the property but is given in good faith for the vendor to start process the sale
The duration of time between the acquisition of an asset and its sale. It is the length of time during which a particular asset is “held” by an individual investor or entity. Holding periods determine how to tax an asset’s capital gain or loss.
Home Buyer’s Plan
A program that allows first-time homebuyers to withdraw from their registered retirement savings plans (RRSPs) to buy or build a qualifying home for themselves. The Canadian government’s Home Buyers’ Plan (HBP) allows first-time homebuyers to borrow up to $25,000 from their RRSP, tax-free, to help first-time homebuyers purchase a home. This is considered a loan and it must be repaid within 15 years.
The value of a property owner’s interest in a real estate property. It is the real estate property’s current market value less any liens that are attached to that property, like mortgages and any other outstanding debts over the property. The amount of equity in a property—or its value—fluctuates over time as more mortgage payments are made and market forces impact the current value of the property. As the property appreciates in value the property owner’s equity increases, but if the property depreciates in value, the property owner could be at risk of negative equity, where the property owner owes more than the property is worth.
Home Equity Debt
Debt secured by the borrower’s home.
Home Equity Loan
Also known as an equity loan, home equity installment loan, or second mortgage—is a type of consumer debt. Home equity loans allow homeowners to borrow against the equity in their homes. Home equity loan amounts are based on the difference between a home’s current market value and the mortgage balance due.
An examination of a property to determine if it is structurally and mechanically safe. A home inspection can make a homeowner aware of any repairs which will be required on the home and this can give a home buyer leverage to negotiate a lower purchase price or inform the home buyer of expensive home maintenance ahead.
A sum of money borrowed from a lender to help you purchase a property. It means you’re pledging your home to the lender as security that you will repay the full amount. Until the loan, plus interest, is repaid in full, your lender holds the title of the property.
Home and Content Insurance
A comprehensive property insurance policy that covers the structure of a home or building and the contents located inside from certain specified perils up to specified coverage limits.
Home Price Index
A financial and market tool that provides historical data on residential home prices in various regions.
A service contract that for a set period covers the cost of maintaining household systems or appliances. The company offering the home warranty promises to repair or replace specific components of the home under warranty if the need arises.
A policy that protects the homeowner against damages to their property caused by fire and other common hazards. Liability insurance, which protects homeowners in case someone is injured on their property, is also included. Most policies are “full replacement cost,” which guarantees sufficient funds to rebuild the home. Full replacement cost is usually determined based on a home’s last appraised value less the cost of the land. To protect lenders’ interests, they are typically named on casualty insurance plans as additional insured parties.
The purchase of a house or property at a reduced market rate for the purpose of a quick turnaround, a “flip,” and profit. Most house flippers must do some renovation or home fix-up in order to turn a profit on a home.
A marked increase in house prices fueled partly by expectations that prices will continue to rise.
A real estate corporation in which buyers own a share of real estate holdings and may reside in a co-op unit. Shareholders do not have mortgages but pay on a cut of the shares and earn equity over the long term.
Housing Expense Ratio
A ratio comparing housing expenses to pre-tax income. Lenders often use it in qualifying borrowers for loans. The general rule is that this ratio should not exceed 28% in the USA or 32% in Canada. This is also known as the front ratio.
Housing Equity Partnership
A partnership in ownership of equity in a house. It is based on the arrangement in which one co-owner lives in a home and the other has an ownership stake as an investment. Typically the ownership is split between the resident and some organization or corporation, often a financial institution. The co-owners split the capital gain after the property is sold. The idea behind HEPs is that they are a way for people to own their homes who otherwise would be unable to purchase a house.
The total amount of gross income earned by every member over 15 years of age of a single household. Sources of household income include wages, salaries, investment returns, retirement accounts, and welfare payments. Lenders use household income to determine the lending risks and how much to lend to a borrower. It is also a useful economic indicator of an area’s standard of living.
A mortgage split into multiple segments each with different term lengths, rates, and rate types. The hybrid mortgage combines the benefits of an adjustable-rate mortgage and a fixed-rate mortgage, such as adjustable rates in the early years and then an automatic conversion to fixed rates after a stated period of time. For example, the 5/25 means adjustable for 5 years and fixed for 25. This type of mortgage allows borrowers to better manage risks and costs. Also known as a laddered mortgage, or a combination mortgage.
The promise of collateral in return for a loan. When a lender chooses to issue a loan to a borrower, the lender sometimes requires collateral to secure the loan in case of default. When that happens, the borrower’s asset is hypothecated or collateralized.
Also known as an escrow account, is an account set up by a lender to pay the borrower’s property related expenses. The borrower funds the account each month as a part of his regular mortgage payment. When the payments come due, the lender pays the bills on the borrower’s behalf. A typical example of this account would be when a lender collects funds from the borrowers with each mortgage payment and pays property tax for the mortgaged property.
Also called impound accounts or escrow accounts, are used to hold money to pay for property taxes and insurance. A mortgage lender sets up the account and adds the taxes and insurance to the property buyer’s monthly mortgage payments. That money is swept into the impound account until the taxes and insurance are due.
The money that an individual or business receives in exchange for providing labour, producing a good or service, or through investing capital.
Income Approach (To Value)
One of the methods in the valuation process of an income property. The estimate of value is reached by estimating the annual income less an allowance for vacancies and bad debts and subtracting annual operating expenses, real estate taxes and insurance premiums to obtain the net operating income. This is then converted by capitalization into a capital value.
A real estate property that is used or is capable of being used in the normal market, primarily for the production of annual income through leasing of the property.
A financial statement showing a person’s or company’s income and expenditure for a specific period, showing a lender the proportions of the income that go to savings, bill and other debt payment, and how much disposable income is left to service a loan. The income statements could be observed monthly, quarterly, semi-annually, or annually.
A type of tax that government imposes on the earnings of companies and individuals. Earnings subject to income taxes can come from diverse sources, including wages, salaries, dividends, interest, royalties, rents, gambling winnings, and product sales.
The process of verifying current and past employment by obtaining dates of employment as well as the amount of income paid. Loan applications may require fully documented proof of an applicant’s income.
A security against any damage or loss, where if compensation is required, indemnity is the amount paid to compensate for a loss.
Also known as the underlying benchmark interest rate, is a published interest rate against which lenders measure the difference between the current interest rate on an adjustable-rate mortgage and that earned by other investments (such as one- three-, and five-year U.S. Treasury Security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average Costs-of-Funds incurred by savings and loans or the lender’s prime rate), which is then used to adjust the interest rate on an adjustable mortgage up or down. The index takes into account their financial position, their cost of lending, and inflation, the official cash rate and the government central bank’s decisions.
The indexed rate on an adjustable-rate mortgage is what causes the fully indexed rate to fluctuate for the borrower.
The interest rates some lenders use to work out their advertised or interest rates for loans.
Initial Interest Rate
The introductory interest rate on an adjustable-rate mortgage (ARM), which usually changes at a predetermined time.
A quantitative measure of the rate at which the average price level of a basket of selected goods and services in an economy increases over a period of time. Over time the cost of living increases so that the same amount of money is able to buy you less and less. Increases in inflation are caused when there are high volumes of money in circulation and that amount exceeds the goods and services which are available to buy, unnaturally raising demand and therefore decreasing the value of the dollar because you need more money to buy the same items.
Assets received from the estate of a person who passed away. It can also refer to the total of the property a person leaves to his or her heirs.
A record on a credit report that shows every time a person, one of their creditors, or a potential creditor requests a copy of their credit report data. See Soft Inquiry and Hard Inquiry.
A report written by a home inspector after a thorough evaluation of the home’s condition, including the electrical system, plumbing, roof, foundation and other structural features. Prospective homebuyers often hire a home inspector and review the report before deciding whether to buy a property.
The regular periodic loan re-payment that a borrower agrees to make to the lender.
A financial product that permits individuals to borrow a large sum of money that they can then repay over time. The installment loan usually carries a fixed interest rate and requires regular monthly payments.
Coverage by a contract or an insurance policy in which an individual, a business, or another entity receives protection against financial loss from an insurance company. There are three components of any type of insurance that are crucial: premium, policy limit, and deductible. The policyholder pays the premium for the coverage by the insurer. Because the cost of coverage is contingent on the risk profile of the insured, insurers may offer policyholders stronger coverage in return for a higher premium.
The policy limit is the maximum amount an insurer will pay under a policy for a covered loss. The deductible is a specific amount the policy-holder must pay out-of-pocket before the insurer pays a claim.
A loan where all or part of the principal and interest and permitted costs are insured against loss by an insurance company. An insured loan is protected against default because, if default does occur, the insurance company will pay the lender what is owed. Insured loans carry lower interest rates than uninsured loans because there is less risk involved.
The amount of money a lender or financial institution receives for lending out money.
Interest Accrual Period
The period over which the interest due the lender is calculated. If the interest accrual period on a 6 % mortgage for $100,000 is a year, the interest for the year is .06($100,000) = $6,000. If interest accrues monthly, as it does on most mortgages in Canada and the USA, the monthly interest is .06/12($100,000) = $500. If interest accrues biweekly, the biweekly interest is .06/26($100,000) = $230.77. And if interest accrues daily, the daily interest is .06/365($100,000) = $16 .44.
The amount of interest accumulated between the property’s closing date and the day the first mortgage payment is withdrawn by the lender, when the closing date falls before the first scheduled mortgage payment.
Interest Adjustment Date
The date one month prior to commencement of amortization – when accrued interest computed on the monies advanced becomes due.
Interest Adjustment Period
The frequency of rate adjustments on an ARM after the initial rate period is over. The rate adjustment period is sometimes but not always the same as the initial rate period. As an example, a 3/3 ARM is one in which both periods are 3 years while a 3/1 ARM has an initial rate period of 3 years after which the rate adjusts every year.
Interest in Advance
An interest relating to a particular period of a loan, calculated or paid at the beginning of the period. For example, a borrower pays 12 months of interest in one lump sum before the Interest in Advance period starts. Interest in Advance is only available on interest-only fixed-rate investment loans.
Interest in Arrears
An interest relating to a particular period of a loan, calculated or paid at the end of the period.
A form of interest calculation where the loan is charged at a daily or monthly rate (1/365 or 1/12 of the annual interest rate) on the current outstanding balance.
A time-adjusted measure of cost to a mortgage borrower. It is calculated in the same way as the APR except that the APR assumes that the loan runs to term, and is always measured before taxes. Interest cost is measured over the individual borrower’s time horizon, and it may be measured after taxes at the individual borrower’s tax rate. In addition, the cost items included in interest cost may be more or less inclusive than those included in the APR.
The highest interest rate possible under an ARM contract; same as “lifetime cap.” It is often expressed as a specified number of percentage points above the initial interest rate.
The dollar amount required to pay the interest cost of a loan for the payment period. Interest due is a component of the total loan payment. Each month, the interest due will decline as the principal balance reduces.
The decimal equivalent to an interest rate on a unit amount for a period of time. Computed by interest rate divided by a number of days in basic year times a number of days accrued.
A mortgage on which for some period the monthly mortgage payment consists of interest only. During that period, the loan balance remains unchanged. An interest-only loan requires the borrower to pay only the interest portion of the mortgage repayments. After the interest-only period has expired, the remaining principal is typically amortized over the remainder of the life of the loan.
Interest-only loans are targeted primarily at investors because they are able to repay the principal amount of the loan at the end of the term or when they sell the property with a portion of the sale price.
The rate, which fluctuates according to various economic forces, that is the measure of the price at which money can be borrowed. The Interest rate is the cost of borrowing the principal.
For example, for a mortgage loan of $200,000 with a 6 percent interest rate, the annual interest expense would amount to $12,000, or a monthly payment of $1,000.
Interest Rate Differential
The penalty a borrower pays for breaking a mortgage.
Interest Rate Floor
The lowest interest rate possible under an ARM contract. Floors are less common than ceilings.
Interest Rate Increase Cap
The maximum allowable increase in the interest rate on an ARM each time the rate is adjusted. Interest rate caps are usually placed on mortgage rates to insulate borrowers against extreme rate jumps over the life of the loan.
Interest Rate Decrease Cap
The maximum allowable decrease in the interest rate on an ARM each time the rate is adjusted. It is usually 1 or 2 percentage points.
Interest Rate Lock
An assurance from a lender that an interest rate will not rise between the time a borrower locks in the terms of the loan and the time the loan closes.
The process of obtaining temporary, short term financing to close a real estate transaction. Interim financing, also called bridge financing or a bridge loan, is often used by a buyer who is selling a home to buy another, but the sale of the first home cannot be completed before the purchase of the second home must be completed.
Interim financing is used to cover the remaining purchase price of the second home until the proceeds of the first sale are received.
Internal Rate of Return
A metric used in capital budgeting to estimate the profitability of potential investments. This is calculated to help determine the return on investment an investor could make. Internal rate of return takes into account the time value of money by showing the rate of interest at which the present value of future cash flow is equal to the cost of the investment loan, so the investor can see the point at which their investment turns a profit.
Introductory APR Period
The length of time after opening the card during which the APR will be lower than the card’s standard APR. When the introductory APR period ends, the APR increases to the regular rate. An introductory APR can help a cardholder save money on interest charges if they ca not pay the credit card balance in full when the bill is due.
A lower initial interest rate charged to a customer during the initial stages of a loan. It is usually offered on mortgages and credit cards for a period between one month and five years, depending on the lender and type of product. At the end of the introductory period, the loan interest rate will revert to the lender’s standard rate for the borrower’s type of loan.
The list of items that will be included in a property sale. This could include furniture or any fixtures or fittings the vendor is including the sale price.
In real estate, a borrower who owns or purchases a property as an investment rather than as a residence.
The money that someone earns from an increase in the value of investments. It includes dividends paid on stocks, capital gains derived from property sales and interest earned on a savings or money market account.
A loan that is specifically tailored to a borrower looking to purchase an investment property where they will not be living but earning income from.
A property that has been purchased with the sole intention of achieving a return. Property investors can earn a return on their purchases through rental income, capital gains when their property increases in value, or both. For a property to be deemed an investment and be eligible for the tax deductions and exemptions, the owner cannot live in the property.
The amount of money or profit made on an investment expressed as a percentage of the investment’s cost. This measure can help an investor to determine whether their investment property is increasing in value, how much it is increasing and how it is likely to continue to increase.
An account shared by two or more people. Each person on the account is legally responsible for the debt and the account will be reported to each person’s credit report.
A credit issued to more than one person based on their credit reports and their combined assets and incomes. The repayment of joint credit is the responsibility of all parties.
The state of two or more people who are equally responsible for paying back a debt. If someone applies for loan such as a mortgage, with another person, the loan agreement may specify that they are each responsible for the debt. This applies both to co-borrowers, who apply for debt together, and to co-signers.
A type of property ownership in which more than one person share ownership in a home and/or property. Joint ownership can be as joint tenants with a right of survivorship or by tenants-in-common.
Joint tenants with a right of survivorship indicates that if there are two or more owners of the property, and one owner dies, then the surviving owner or owners will continue to own the property.
With the tenancy in common, each owner will hold a percentage of interest in the property. The percentages owned do not have to be equal portions. Most often, this percentage of ownership is determined by how much each owner contributes to the purchase of the property.
Joint and Several Liability
A variation of joint liability. It applies to loans where there is more than one borrower on the account. If joint and several liability applies, the creditor – your lender – has as many rights of action as there are other debtors listed. This means each debtor can be sued individually, as well as jointly until the creditor has obtained their payment. if the creditor receives an unsatisfactory outcome from pursuing one debtor, they are not exempt from being able to pursue the others.
A type of property ownership in which more than one person share ownership equally in a home and/or property. This is common for spouses. This agreement also creates a right of survivorship, which means that if one person dies, the other party automatically assumes full ownership of the property.
An association based on the contract between two or more parties to own and/or develop real estate. It may take a variety of forms including partnership. It is formed for specific purposes and duration. Each party in the joint venture is responsible for profits, losses, and costs associated with it.
The process of taking a mortgaged property when the homeowner fails to keep up his or her mortgage payment. A judicial foreclosure refers to when the foreclosure goes through the court system, and there is a court order for the property to be sold to pay the debt.
A decision from a judge on a civil action or lawsuit. Usually, a person is required to pay an amount of money to satisfy a debt or a penalty. Judgment records remain on the person’s credit report for 6 years and harm the person’s credit score.
A mortgage that is subsequent to the claims of the holder of a prior (senior) mortgage.
A construction loan backed by the value of the land.
A plan showing the boundaries of a property and where buildings are positioned within those boundaries. Land surveys are used to identify boundaries and features of the land to determine ownership. A land survey is the scientific process of measuring the dimensions of a particular area of the earth’s surface, including its horizontal distances, directions, angles, and elevations. Artificial structures, such as a road or building, may also be noted on a survey.
Land Transfer Tax
A tax imposed by some provincial governments and paid by the purchaser of a property at closing. A land transfer tax may be imposed by a province and/or municipality. Land transfer tax is payable on the closing date when the Transfer is registered.
Land transfer tax is based on the amount paid for the land, in addition to the amount remaining on any mortgage or debt assumed as part of the arrangement to buy the land.
For example, when a property owner buys land or an interest in land in Ontario, they pay Ontario’s land transfer tax. In addition to provincial land transfer tax, the City of Toronto has a separate land transfer tax (the Municipal Land Transfer Tax) and is the only municipality in Ontario to levy such a tax. The Municipal Land Transfer Tax applies to all purchase transactions in the City of Toronto.
Land Transfer Tax Rebate
A tax rebate program available to qualifying first-time homebuyers in Canadian provinces, Ontario, British Columbia, and Prince Edward Island.
An additional charge a borrower is required to pay as a penalty for failure to pay a regular payment installment on the loan when due. Most mortgage notes offer borrowers a 10 or 15-day grace period, with a late charge of about 5% on payments received on the 16th or later.
A payment received after the grace period stipulated in the note. Most mortgage grace periods are 10 or 15 days.
Also known as an inherent defect, is damage to real estate property or a construction project that is not apparent upon initial inspection and is discovered when the property or project is turned over to new owners.
A website designed to gather and capture leads to businesses for the purpose of expanding the business and increasing sales revenues. Lead generation is the method of getting inquiries from potential customers. Mortgage lead generation web sites collect information from potential borrowers visiting the sites and sell it to mortgage lenders and brokers.
A financial institution that heads up a financial consortium or syndicate to provide funds for a mortgage.
A contract between a landlord (lessor) and tenant (lessee) for the occupation or use of the landlord’s interest in a property by the tenant for a specified period of time and for a specified consideration (rent).
A type of contract that allows a potential homebuyer to lease a home with a purchase option on the home within a specified period.
An asset or property that a lessee (tenant) contracts to rent from a lessor (property owner) for a specific period in exchange for scheduled rent payments.
A mortgage given by a lessee on the security of his leasehold interests in the land.
The geographical description of real estate that identifies its precise location, boundaries and any easements for the purpose of a legal transaction, such as a transfer of ownership. A legal description is kept with the deed.
Fees associated with the sale or loan application processing by a lawyer or a lender. The fee can cover the lender’s legal costs in having the borrower’s loan contracts drawn up, as well as the time the solicitor spends reviewing the property sale or purchase contracts.
An entity (a financial institution or an individual) that lends money to borrowers for the purchase of a real estate property or other for other purposes.
Fees associated with closing costs, sometimes called processing fees. Fees are designed to cover costs incurred by lenders during the loan process.
Lenders Mortgage Insurance (LMI)
A type of insurance policy a mortgage holder buys on behalf of a lender, protecting the lender in the event of default on the mortgage. LMI is calculated as a percentage of the borrower’s loan amount.
The property value for mortgage purposes. Usually the lesser of appraised value or sale price.
A tenant of real property under a lease.
The owner of a property that is leased or a person who grants a lease.
Letter of Credit
A document issued by a bank or financial institution that guarantees that a seller will receive a buyer’s payment on time and for the full amount. In the event that the buyer is unable to make a payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase. Banks usually require a pledge of securities or cash as collateral for issuing a letter of credit. Also called Credit Letter.
Letter of Intent (LoI)
A non-binding document that outlines a proposed understanding between two or more parties who wish to finalize the details for a future transaction. A letter of intent provides a formal, but preliminary, an agreement between two parties who intend to do business with each other. They are frequently used in business transactions as a pre-agreement. Their terms are nonbinding and still subject to negotiation pending a formal contract.
A method of loan repayment where periodical payments of principal and interest are made in a certain way so the payment amount remains constant.
A property financed with mortgage debt.
Something that a person or organization owes money on. The liabilities include all debts and obligations, like mortgages, personal loans, student loans or credit card debts, and obligations on outgoing expenses and bills.
A legal claim by one person or entity over a property of another to hold it as security against a debt or loan. In real estate, the liens are used to ensure the payment of a debt, with the property acting as collateral against the amount owed. Liens also include obligations not met or satisfied, judgments, unpaid taxes, materials, or labour.
The practice of mortgages withholding up to 15% of mortgage monies advanced on new construction.
Life-Cycle Cost Analysis
A method of calculating a building’s expected operating and maintenance costs over its lifespan.
A title where the boundaries of the property are not certain.
Line of Credit
A flexible loan arrangement that gives a borrower the ability to draw down on an agreed amount of equity through their loan account. The borrower can take money out as needed until the limit is reached, and as money is repaid.
Anything a person or business owns that can be instantly converted into cash without losing its value.
The percentage of assets that can be quickly turned into cash. Liquidity is also a measure of the funds available for a down payment, closing costs, and reserves.
The real estate agent who represents the interests of the seller.
A borrowed amount of money that is repaid in full as well as with a certain amount of interest and other financial charges.
A written agreement entered into by and between a borrower and lender, which regulates the mutual promises made by each party. Loan agreements are binding on both, the borrower and the lender: the lender’s promise to loan money to the borrower in exchange for the borrower’s promise to repay the money lent as described by the agreement.
The total amount of money given to the borrower in exchange for the borrower’s promise to repay it, as outlined in the loan contract.
A document in which a prospective borrower provides his contact information, address, financial and other vital information for the lender to consider before loans are granted.
Loan Application Fee
Cost charged by a lender for processing loan application documents that are submitted by prospective borrowers.
A lender’s promise to advance a specific sum on specific terms.
A process of combining multiple loans into one for the benefits of one monthly payment with one servicer. For example, loan consolidation enables a student to consolidate multiple student loans into a single loan. By consolidating the student loans, the student only has to make one payment every month.
A financial crime that entrails the falsifying of loan documents, or otherwise trying to illegally profit from the loan process. For example, when a person purposely provides false or misleading information on their loan application to help them qualify for a larger loan amount than they would normally be eligible for. Loan fraud can result in civil liabilities or criminal penalties.
The term used to describe the process that occurs when a buyer obtains a mortgage loan from a lender. It involves several stages, starting with the loan application by the borrower, the submission of appropriate documentation, the lender’s assessment of the application and the final granting of the loan.
Loan Origination Fee
An upfront fee charged by a lender for underwriting a loan. Loan origination fees are quoted as a percentage of the total loan. Also known as discount fees or points.
An employee of a lending institution that functions as the liaison between that lender and its customers that apply for a loan.
A fund pre-approved based on a preliminary evaluation of a potential borrower by a lender. For example, a loan pre-approval is when a borrower has the funds they need to purchase a property approved before they have found a property. This allows the borrower to clarify their budget and borrowing capacity and put in an offer for a property purchase. Pre-approval is often provided in writing and can be valid for three to six months.
Loan Processing Fee
An up-front, non-refundable fee charged by a lender for accepting and processing a loan application and gathering the supporting documentation.
Supervising a loan after funds have been released to the borrower. This could involve administrating the loan, collecting re-payments, keeping accounting records, computing interest and principal, sending monthly and yearly payment statements, collecting and paying taxes and insurance and managing escrow funds, as well as following up any delinquencies.
Loan to Value Ratio (LVR or LTV)
The ratio of the amount a borrower has borrowed to the value of the security, where the security is usually the property the borrower has borrowed to buy. To calculate the LVR divide the loan amount by the property’s valuation amount, then multiply by 100. LVR is expressed as a percentage. For example, if a borrower wants $100,000 to buy a home worth $120,000, the LTV ratio is $100,000/$120,000 or 83%.
Borrowing greater than 80% LVR will often require the borrower to pay lenders mortgage insurance.
An agreement between a borrower and a lender that allows the borrower to lock in the interest rate on a mortgage for a specified time period at the prevailing market interest rate.
A loan lock provides the borrower with protection against a rise in interest rates during the lock period.
A set amount of time during which the interest rates buyers have been promised cannot be made any higher.
Locked In Rate
A specific interest rate for a mortgage loan that is being held for a borrower. The locked rate stays the same for a period of time, generally between 30 and 60 days, while the mortgage progresses to closing.
A type of loan product that allows a potential borrower to apply for a mortgage while providing little or no information regarding their employment, income, or assets. Low documentation loans are designed for people who are self-employed and who cannot provide the traditional income documentation required for loan approval. The interest charged on a low doc loan may be higher. Low doc loans and non-conforming loans often require that the borrower has mortgage insurance.
Secured loans that require a small down payment, usually less than 10%. These kinds of loans usually require that mortgage insurance (PMI) is purchased by the borrower.
Low-Down Payment Loan
A mortgage where the borrower puts down a small amount and borrows a high percentage of the property’s purchase price.
Lump Sum Repayment
An additional repayment a borrower makes above the minimum repayment amount required. Some lenders require a minimum amount for a lump sum repayment, and others charge the borrower a fee to make a lump sum repayment.
The array of laws and regulations dictating the information that must be disclosed to mortgage borrowers, and the method and timing of disclosure.
The difference between a lender’s advertised interest indicator rate and the rate they actually charge to borrowers. The amount added to the interest rate index, ranging generally from 2 to 3 percentage points, to obtain the fully indexed interest rate on an ARM.
A program that allows a borrower to borrow money against the borrower’s existing assets such as cash or shares, for the purpose of financing investments.
A key feature of margin lending is that the ability to borrow funds is determined by the assets in the portfolio, their loanable value and a credit limit based on the borrower’s financial position.
Market Approach (To Value)
One of the methods in the valuation process. The property being appraised is compared with similar properties that have recently been sold or offered for sale. Adjustments are made to compensate for differences between the comparable and the subject property to obtain the market value of the subject.
The factors that influence the housing market in a particular area, such as cost of living, demographics, supply and demand, mortgage rates and more.
The highest price which a buyer, willing, but not compelled to buy, would pay, and the lowest a seller, willing, but not compelled to sell, would accept.
A title that may not be completely clear, but has only minor objections that a well-informed and prudent buyer of real estate would accept.
The date when an investment, such as a certificate of deposit (CD) or bond, becomes due and is repaid to the investor. At that point, the investment stops paying interest and investors can redeem accumulated interest and their capital without penalty. In the case of a mortgage, the maturity date represents the date when the final repayment is made to the lender and is the last day of the loan term.
The maximum amount of money a lender is willing to finance the borrower’s purchase of a real estate property, as outlined during the mortgage pre-approval process.
Maximum Loan Amount
The total amount that an applicant is authorized to borrow. Based on the borrower’s income, expenses, deposit, property price and status – whether the borrower is a couple or with children – their lender will calculate the maximum amount they are eligible to borrow.
Maximum Loan to Value Ratio
The largest allowable ratio of a loan’s size to the dollar value of the property, usually expressed as a percentage.
Maximum Redraw Amount
Redraw mortgage option allows a borrower access to extra principal repayments they have made on their loan. When the borrower makes additional loan repayments the borrower can access these funds using the redraw facility. The maximum redraw amount depends on how much extra a borrower has repaid on their home loan. Different lenders have different minimum and maximum redraw amounts which are outlined in the mortgage contract.
The maximum amount of time a borrower has been given to repay the loan. Typical loan terms are 25 or 30 years, however, a maximum term may also refer to a portion within that term such as the maximum term of a fixed interest rate.
The actual average home sale price and is calculated on the total of the list of sales, divided by the number of sales on that list.
The sale price of the middle home in a list of properties ranked from highest sale price to lowest over a set period of time. For example, 15 sales are recorded and ordered from the lowest to the highest and the eighth price is the median price. Calculations of median house prices are usually conducted over a three-month period or a full calendar year and can also be broken down further into the upper and lower quartile, where you can look at the top 25% or the bottom 25% of sales.
The median sale price is not the same as the average sale price. The average sale price is calculated by adding all the sale prices for homes sold in a specific area within a specified time frame and dividing that total by the number of properties sold. For instance, if ten properties sold in a city in the last 30 days, the average home price would be calculated by adding the sale prices for all ten properties and dividing that figure by ten.
Mortgage Finance Company, a non-depository financial institution that underwrites and administers mortgages sourced through brokers. Its lending is funded mainly through public securitization or direct sales to third parties, primarily the banks. MFCs also generally service the mortgages they underwrite or contract with other MFCs that provide this service.
Mortgage Investment Company, an investment and lending company designed specifically for mortgage lending in Canada. Mortgage investment corporations are generally provincially registered and licensed, with the management of the mortgage fund under the direction of provincially licensed mortgage brokers and real estate agents.
Minimum Fixed Amount
The minimum amount that can be borrowed at a fixed interest rate. This is determined by the lender and the type of loan.
Minimum Loan Amount
The minimum amount that can be borrowed. This is determined by the lender and the type of loan.
Minimum Redraw Amount
Redraw mortgage option allows a borrower access to extra principal repayments they have made on their loan. When the borrower makes additional loan repayments the borrower can access these funds using the redraw facility, but it may be required to make a redraw of a minimum amount set by the lender in the loan contract.
The monthly amount a borrower has agreed to pay in their loan contract to repay their loan within the term.
The lowest amount a customer can pay on their revolving credit account per month to remain in good standing with the credit card or a line of credit loan.
An alternative to traditional subsidized-housing initiatives for low-income residents. Mixed-income housing communities are developments that comprise different levels of affordability, with some units at market rate and others available to low-income households at below-market rates.
The actions undertaken by a nation’s central bank to control the money supply and achieve sustainable economic growth. In Canada, the Bank of Canada can influence the economy through changes in short-term interest rates and the money supply.
Monetary Policy Report
A quarterly report by a nation’s central bank outlining projection for inflation, any growth of the national economy, and its current risk assessment of household debt levels.
Monoline Mortgage Lenders
The non-bank lenders that focus only on providing loans such as mortgages. These lenders do not offer checking or savings accounts or provide other related non-lending services.
Monthly Mortgage Payment
A mortgage payment plan where a mortgage payment is made on the same day of each month (i.e. on the 1st), so a borrower makes 12 payments per year.
Monthly Periodic Rate
The interest rate factor used to calculate the interest charges on a monthly basis. The factor equals the yearly rate divided by 12.
A debt instrument, secured by the collateral of specified real estate property, that the borrower is obliged to pay back with a predetermined set of payments. Also known as a lien or claim against real property given by the buyer to the lender as security for money borrowed.
Mortgage Acceleration Clause
A provision of a mortgage loan agreement that lets a lender demand payment of the full balance under specified circumstances, such as sale of the property, default or refinancing. Not commonly used in Canada and/or by Canadian lenders.
The process of repaying a mortgage loan, usually using a consistent monthly scheduled payment.
The document a borrower submits to the lender, in order to be approved for a mortgage loan. A mortgage application will include information about the property, as well as the financial and background information about the borrower(s). Mortgage underwriters use the information to determine how much money they will lend to the borrower(s), for how long and at what interest rate.
A process of approving a mortgage application by a lender based on the ability of a borrower to repay a mortgage loan. The mortgage approval process is similar to a mortgage pre-approval. A mortgage approval specifies a mortgage term, interest rate and principal amount, and other information related to the borrower and a property that is financed.
A fixed-income security that derives its cashflow from payments on a pool of underlying residential or commercial mortgages.
The full amount owed by a borrower at any period of time during the duration of the mortgage and is the sum of the remaining principal owing and accrued interest.
A mortgage balance is used when calculating the equity in a real estate property. The mortgage balance is deducted from the market value of the real estate property to determine the equity.
A licenced professional that obtains loans for borrowers from lenders. A mortgage broker aims to find their clients the best mortgage products at the best mortgage rates. A mortgage broker earns a commission known as origination fees, based on the size of the loan, in return for referring the borrower to the lender. In Canada, mortgage brokers are regulated by the provinces, with each having its own rules and regulations. Generally, mortgage brokers must be licensed and follow a code of ethics when providing brokerage services to the clients.
A legal identity licensed to trade in mortgages. Mortgage Brokers and Licensed Mortgage Associates must be licensed under a brokerage. A Mortgage Brokerage must have at least one licenced mortgage broker in order to be eligible to provide mortgage brokerage services to the public.
A business with the principal activity of providing or servicing mortgage loans. A mortgage company may be a chartered bank, a credit union, a trust company or other financial institution providing mortgage loans.
A document in which the mortgagor transfers an interest in real estate to a mortgagee for the purpose of providing a mortgage loan.
Mortgage Disability Insurance
A type of Insurance policy that covers mortgage payments if a policyholder becomes disabled.
A form of prepaid interest whereby the borrower lowers the interest rate of the mortgage at closing.
Mortgage fees include all of the costs associated with getting a mortgage loan that lenders and brokers include in the Good Faith Estimate. Each lender and broker have their list of fees, but here are the most common: Appraisal fee, Origination fee, Yield spread premium (YSP), Processing fee, Underwriting fee, Broker fee and Legal fee.
An insurance policy that protects a mortgage lender or title holder in the event that the borrower defaults on payments, dies or is otherwise unable to meet the contractual obligations of the mortgage. In Canada, the mortgage insurance is available through CMHC or private insurers covering whole or partial losses of principal and interest of a mortgage loan.
Mortgage Insurance Premium
The up-front and/or periodic charges that the borrower pays for mortgage insurance. There are different mortgage insurance plans with differing combinations of up-front, monthly and annual premiums. The most widely used premium plan is a monthly charge with no upfront premium.
An individual or entity who owns the mortgage loan that was extended to a homeowner, and is the party entitled to enforce the terms of the mortgage.
A packet of information about a consumer who a loan provider might be able to convert into a borrower.
A mortgage lender is an entity, often a bank, that provides financing for the purchase of real estate.
Mortgage Life Insurance
An insurance policy designed specifically to repay mortgage debt in the event of the death of the borrower or if the is diagnosed with an eligible life-threatening condition. It may pay off either the lender or the heirs, depending on the terms of the policy.
This is a very limited form of life insurance. The term of the life insurance policy matches that of the mortgage, and the death benefit is usually reduced each year to correspond with the new amortized mortgage balance outstanding as mortgage payments are made
Mortgage Loan Officer
A representative of a lending institution that acts as an intermediary between the institution and the borrower.
An individual that arranges finance for a real estate buyer or owner to purchase or finance a real estate property, but unlike banks, building societies or credit unions, mortgage managers do not source the funds from their base of customer deposits, but instead through securitization.
An institution or individual that works with a borrower to complete a a home loan transaction. A mortgage originator is the original mortgage lender and can be either a mortgage broker or a mortgage banker. Mortgage originators are part of the primary mortgage market and must work with underwriters and loan processors from the application date until closing to gather the necessary documentation and guide the file through the approval process.
A standard set by a mortgage lender to approve a potential borrower a certain mortgage loan amount.
Stands for a percentage point of the loan amount typically makes up the origination fee, which can be a fraction of a point to multiple points. Often in order to get a lower interest rate, lenders will allow borrowers to “buy down” the rate by paying points. Paying a percentage point up front in order to get a lower rate will eventually be a saving to borrowers in the long run if they stay in the house for the duration of the loan.
The aggregate of mortgage loans held by an investor.
An evaluation of a borrower’s affordability for a mortgage loan In a pre-approved mortgage process, the lender will base its decision upon a borrower’s credit score, down payment amount and debt service ratios. During the pre-approval process, it is determined the maximum loan the borrower can afford, the maximum property purchase price they can consider, as well as the mortgage rate and payment that would go along with it. When the borrower gets pre-approved, the borrower can also get a rate hold, which guarantees the lowest rate for a specific period of time.
Mortgage Professionals Canada
An association that provides the Accredited Mortgage Professional (AMP) designation in Canada (French: CHA), to qualifying mortgage professionals. It is the national association representing Canada’s mortgage industry.
Advice on where to go to get a mortgage.
A new agreement to extend or renew mortgage terms with the borrower’s mortgage holder. At the end of the current mortgage term, if the borrower still has a balance on the mortgage, the borrower will need to renew it for another term. At renewal, the borrower has an opportunity to renegotiate the terms of the mortgage contract, including the length of the mortgage term, interest rate, and even to find another lender.
The process of paying off and replacing an old loan with a new loan with a higher borrowed amount than the remaining principal balance and different terms than the original mortgage. Borrowers usually choose to refinance a mortgage to take cash out of their equity.
The act of paying back money borrowed from a lender. Mortgage paid at regular intervals to a lender and it may be comprised of interest only, or both principal and interest.
Mortgage Registration Fee
A fee charged by state/province or territory governments to register the security for a mortgage. In other words, it registers the physical property as the security on a mortgage. It is a part of the loan application process, and therefore payable before the settlement of the loan.
Deceptive and exploitative schemes by lenders, brokers, home sellers and sometimes even borrowers.
See Loan Servicing.
The process of finding the best deal on a mortgage.
Offers for great mortgage deals that appear unbidden in a person’s email.
A document prepared by a mortgage holder and provided to the borrower. The mortgage statement shows the current mortgage balance, current interest rate, amount remaining on the mortgage term and amortization and the contact information for the mortgage holder.
The mortgage statement may also provide a history of payments from the date of the last issuance. The mortgage statement is provided to the borrower periodically, at least annually, and can be provided to the borrower upon request.
A fundamental concept both from a legal perspective and in terms of putting an investor’s money to work sensibly and prudently. For mortgages, it means that mortgage lenders should be held liable for providing loans that are not suitable for the borrower.
The length of time a borrower commits to one mortgage rate, lender, and associated mortgage terms and conditions. The term the borrower chooses will have a direct effect on the mortgage rate, with short terms historically proven to come with lower rates than long terms.
Mortgage Title Insurance
A type of insurance that protects against loss in the event a sale is later invalidated because of a problem with the title. Mortgage title insurance protects a beneficiary against losses if it is determined at the time of the sale that someone other than the seller owns the property.
Before mortgage closing, a representative, such as a lawyer or a title company employee, performs a title search. The process is designed to uncover any liens placed on the property that would prevent the owner from selling. A title search also verifies that the real estate being sold belongs to the seller.
The creditor or lender who is providing the funds in a mortgage agreement.
A person or company who borrows money to finance the purchase of real estate using the value of the property as collateral for the loan. In simple terms, the person buying a home using a mortgage is known as the mortgagor.
A building or home that has multiple units owned by one or more parties. Condo buildings and duplexes can be considered multi-family residences, but with a duplex, both the property and the land are recorded on one deed. With a condo, the owners own their individual units and have a tenancy in common with all of the owners in the complex for the shared space.
Multiple Listing Service (MLS)
A group of private databases that provides real estate brokers with a comprehensive look at available housing in a particular market or across markets. Each MLS database serves specific regions and is available only to agents who pay for membership. The information, which used to be guarded, is now available at numerous websites.
A method of loan repayment in which the borrower does not pay back the full amount of interest owed each month. The portion of interest that remains unpaid is added to the total amount owed to the lender.
Negative Amortization Cap
The maximum amount of negative amortization permitted on an ARM, usually expressed as a percentage of the original loan amount (e.g., 110%). Reaching the cap triggers an automatic increase in the payment, usually to the fully amortizing payment level, overriding any payment increase cap.
A situation when the value of an asset is less than the amount owed on a loan to buy it.
Net Effective Rent
The rent a lessee pays on average per month of a lease period. It is not the actual amount she pays per month, but a mathematical calculation that takes into account free months on the lease as if they’d been paid for. The net effective rent may appear on rental listings to guide potential renters toward the listing with the promise of lower payments.
A situation when the value of an asset is less than the amount owed on a loan to buy it.The sum of an individual’s or business’s total earnings or pre-tax earnings after factoring deductions and taxes in gross income.
Net income is the total amount a person earns in a given period from all taxable wages, tips, and investment income like dividends and interest. The net income is calculated by subtracting all allowable deductions from a person’s total income for the year.
In a business context, it is the last line on a company’s income statement. Net income is the same as the “profit” of a business, or its “earnings.”
A lease that provides that all expenses attributable to the real estate are paid by the tenant. Local terminology may require some expenses to be paid by the landlord.
Net Operating Income
In the valuation process the annual income available after operating expenses and real estate taxes to service the debt and provide the owner with a return on his investment.
Gross pay minus deductions and taxes.
The amount of money a seller takes away from selling a home. This is different from the homeowner’s equity in the home because it takes into account agent commissions and closing costs, which are paid by the seller and subtracted from the sale price. Closing costs include:
• Balance of all outstanding mortgages and additional liens on the property
• Commission to the seller’s agent
• Commission to the buyer’s agent
• Any additional closing costs owed by the seller (buyers and sellers can sometimes negotiate over who pays which fees)
While the borrower may know the mortgage balance, the remaining costs can vary and depend on their specific home, location, and type of transaction. If net proceeds are negative, the seller must either bring money to the closing table to ensure all mortgages are paid off, or get bank approval for a short sale.
A measure of wealth. Net worth is the sum of all assets owned by a person or a company, minus any obligations or liabilities.
Net Worth Statement
A document containing a list of the assets and liabilities of an individual or company. The statement is used for reporting the short-term and long-term financial state or status of an individual or company.
The interest rate return on a mortgage after deducting the percentage equivalent of mortgage servicing from the coupon rate of the mortgage.
New To Canada Mortgage
The mortgage financing process that those who are new to Canada must undergo, which includes having to submit extra supporting documentation than permanent residents, and potentially needing to use one of the mortgage default insurance providers’ New to Canada mortgage programs.
No Deposit Mortgage
A type of home loan that does not require any upfront deposit on the property purchase. Typically, the borrower does not need to demonstrate a savings history and only require funds to cover the transaction costs such as legal fees and any statutory charges such as stamp duty. Often these loans require some form of guarantee or guarantor.
No Documentation Loan
A loan that does not require the applicant to provide much personal information. When a borrower applies for a mortgage, the lender will want to see certain documents, including verification of income through bank statements, tax returns or pay stubs. With a no-documentation loan, lenders don’t require them.
When lenders were underwriting a no-documentation loan, they allowed borrowers to simply state their income rather than depending on verification through personal financial documents.
Nominal Interest Rate
A quoted interest rate that is not adjusted for either intra-year compounding, or inflation. A quoted rate of 6% on a mortgage, for example, is nominal.
Also known as nonrecourse debt or nonrecourse plan, is one that is secured by collateral. Nonrecourse loans are frequently a type of mortgage loan secured by the real estate itself. However, the borrower is not liable for any loss incurred by the lender if the collateral loses value.
A loan that fails to meet bank criteria for funding. Reasons include the loan amount is higher than the conforming loan limit, lack of sufficient credit, the unorthodox nature of the use of funds, or the collateral backing it. In many cases, non-conforming loans can be funded by hard money lenders, or private institutions/money. A large portion of real-estate loans are qualified as non-conforming because either the borrower’s financial status or the property type does not meet bank guidelines.
Nonconforming finance is also called subprime lending.
A property that is being used in contravention of current zoning by-laws but is permitted to remain because it pre-dates the enactment of the zoning by-laws.
Assets that can be difficult to liquidate quickly. Assets are classified as either liquid or non-liquid. A liquid asset can quickly and easily be turned into cash, while a non-liquid asset cannot. A home is a non-liquid asset because it might take several months to find a buyer for it and several more weeks before you receive the money from the transaction.
Non-Qualified Syndicated Mortgage
A higher-risk mortgage product usually not suitable for the average investor. Non-qualified syndicated mortgages are all syndicated mortgages that do not meet the regulatory definition of a qualified syndicated mortgage (See Qualified Syndicated Mortgage).
Non-Resident Speculation Tax (NRST)
The NRST is a 15 percent tax that applies to purchases of certain types of properties located within the Greater Golden Horseshoe area in Ontario by certain prescribed entities. This tax is in addition to the Land Transfer Tax which applies to all purchase transactions in Ontario and the Municipal Land Transfer Tax which applies to all purchase transactions in the City of Toronto.
NRST applies to purchases of land containing at least one and not more than six single-family residences. The NRST does not apply to purchases of multi-residential buildings containing more than six units, or commercial land, agricultural land or industrial land.
NRST is payable by individuals who are not Canadian citizens or who are not permanent residents of Canada, Foreign Corporation and Taxable Trustees
The NRST is payable with respect to transfers that are registered on title and that are not registered on title.
The percentage paid by a borrower for the use of money, usually expressed as an annual percentage on a promissory note.
Notice of Assessment
Also known as an NOA, is the summary form that Revenue Canada sends to the taxpayer after the payer’s income tax has been filed. It specifies what the taxpayer claimed on their taxes the previous year, as well as the amount of taxes they owe, or the amount of money that they will be received as a tax refund.
Notice of Default
A note from a lender indicating that the borrower has fallen behind on his payments or otherwise breached the terms of the mortgage loan. At this point, the borrower usually has an opportunity to make up his missed payments and get out of default before the bank officially sells or forecloses on the home.
A conditional proposal made by a buyer or seller to buy or sell an asset which becomes legally binding if accepted. Offers are made in a manner that a reasonable person would understand its acceptance and will result in a binding contract.
Offset Account/Mortgage Offset Account
A savings account held by the same institution which issued the loan/mortgage, where the interest a borrower earns in their savings account offsets the interest the borrower pays on their mortgage. A mortgage offset account allows the borrower to offset their tax bill against interest savings made. Some offset accounts will offset at the same rate of interest as the mortgage. These are known as 100% offset accounts.
Off the Plan
A contract to purchase a property that is yet to be built. It is part of a construction process when the buyer has seen and agreed to the plan of the property. This most typically applies to new apartment complexes when apartments are purchased before or during the construction stage.
Mortgage whose annual rate changes yearly. The rate is usually based on movements of a published index plus a specified margin, chosen by the lender.
Fees charged by the home loan lender to cover the internal costs of maintaining the loan.
An independent governing agency that handles any customer issues or complaints regarding their product or service. Home loans are overseen by The Credit & Investments Ombudsman.
A scheduled period of time in which a house or other building for sale is designated to be open for viewing by potential buyers. Buyers have an opportunity to view the property, ask questions of the real estate agent on hand and get information about the neighborhood, including schools, parks, churches, hospitals, and any upcoming development projects.
A property that multiple brokers have the option to market and sell to earn commission on the sale of the home.
A fund that continually receives new money and adds new property or mortgages. Investors get into or out of the fund by buying or selling unit shares. Shares are valued on the basis of appraised values.
A type of car lease in which consumer, or lessee, agrees to pay the difference between the fair market value of the car and its residual value.
A privilege given to the mortgagor permitting him to prepay all or part of the principal amount at any time with or without notice or bonus. Open mortgage rates are usually higher than closed mortgage rates.
Option ARM (Pay Option ARM)
An adjustable-rate mortgage (ARM) that gives the borrower a set of choices of how much interest and principal to pay each month. This may result in negative amortization. The option period is typically limited, for example, to five years.
Option to Buy
A legally binding contract that can a buyer the first right of refusal on a property.
In broad terms, ordinary income is money earned from working. This includes hourly wages, salaries, tips, commissions, interest earned from bonds, income earned from business, some rents and royalties, short-term capital gains that are held for no more than a year, and unqualified dividends. It excludes anything that can be classified as long-term capital gain, which in most cases refers to the sale of a property and the income derived from that transaction.
The process that involves the preparation of a borrower’s loan, including submitting and evaluating the loan application, running a credit check, verifying employment details, and completing a valuation of the property.
Also known as the application fee, covers the lender’s costs to originate the loan. This fee may include an application fee, appraisal fee, fees for all the follow-up work and other costs associated with the loan.
A process of issuing more debt and equity than its assets are worth. When the property owner overcapitalizes, they will be spending more money on their home than they will get when they sell the home.
The interest rate at which large banks borrow money, short term, among themselves.
A limit determined by the lender which a borrower can exceed the borrower’s account balance by. The overdraft is often charged interest and must be repaid but there is no set monthly repayment amount.
The penalty associated with an overdraft.
A service provided by a bank that protects against nonsufficient funds, or NSF. If a borrower spends more than what is in the borrower’s checking account, overdraft protection covers the purchase. Banks charge a fee for that service.
A purchaser that plans to live in the property as their main place of residence.
An expression used when a mortgage is sold or purchased for the outstanding balance without premium or discount.
On an equal basis. When mortgages are syndicated the lenders participate equally. No one party has preferential access to gains or is able to opt out of losses. In company stock it refers to the equal ranking of a company’s preferred shares.
A release from the mortgage of a definite portion of the mortgaged lands usually given after the mortgagor has prepaid a specific portion of the mortgage debt.
The status of a bill when the minimum payment has not been received by the due date.
The process of reducing the amount owed on a mortgage or other loan over time by making partial payments toward the debt. A paydown can refer to any debt, such as a car loan, credit card debt or school loan.
Payment Adjustment Period
The time period where payments on an adjustable-rate mortgage (ARM) may fluctuate.
A record of a person’s past debt payment. It is a critical element in determining whether a person or business has good or bad credit. A long record of on-time payments is the most important element in obtaining loans, and at favorable rates.
Taxes that employees and employers must pay based on wages and tips earned and salaries paid to employees. The employee pays part of these taxes through a payroll deduction, and the employer pays the rest directly to the government revenue agency.
A document received by an employee that provides detailed employment income particulars for a specific period of time called a pay period. As it relates to the mortgage process, the pay stub along with a job letter helps qualify income for an individual employed at a company.
Per Diem Interest
The amount of interest charged daily for a just-closed mortgage. Lenders calculate per diem interest to cover the period between the time a loan closes and the day before repayment officially begins. In order to calculate the per diem interest amount, lenders may use a daily interest rate.
Expenses that come less frequently than once per month, like auto club memberships or insurance premiums that are due a few times per year, or things like auto registration or property taxes that are due once per year.
The interest rate charged on a loan over a certain number of time periods. The periodic rate equals the annual interest rate divided by the number of compounding periods. Lenders typically quote interest rates on an annual basis, but the interest compounds more frequently than annually in most cases.
For most credit cards, the periodic rate is a monthly rate. A credit card with an 18% APR has a monthly periodic rate of 1.5%. The interest on a home loan is usually calculated monthly, so if the annual interest rate is 4 percent, then divide that by 12 and get 0.33 percent. That’s the interest every month.
Periodic Rate Cap
The limit how much an interest rate can increase or decrease from one adjustment period to the next in an adjustable-rate mortgage (ARM).
The elimination of any claims against title.
A cheque issued from a personal chequing account rather than issued by the bank.
The income that individuals receive from all sources, including wages and salaries, dividends and interest, rents, profits, and transfer payments.
A form of unsecured debt, meaning that they are not backed by collateral, unlike mortgages and auto loans. Personal loans have fixed repayment schedules and higher interest rates than secured loans. Rates vary, depending on your credit score and loan eligibility. Personal loans can be viable alternatives to home equity loans.
A class of property that can include any asset other than real estate. The distinguishing factor between personal property and real estate, or real property, is that personal property is movable or not fixed permanently to one particular location. It is generally not taxed like fixed property.
A second loan on top of a conventional mortgage loan that makes it possible to finance a real estate purchase without the need to put down a full 20 percent deposit. The primary mortgage is for 80 percent of the property’s value and the second loan funds the balance of the purchase price less the deposit.
A transaction by which two separate mortgages are originated at once. Typically utilized by borrowers who wish to avoid paying private mortgage insurance (generally a requirement when a person makes a down payment of less than 20%), piggyback transactions can be a mortgage split into 80-10-10% mortgages. The first position lien has an 80% loan-to-value ratio and the second position lien has a 10% loan-to-value ratio. The remaining 10% is accounted for in the form of a down payment.
The monthly housing costs – mortgage principal + interest, taxes and heating expenses – used when calculating borrowers’ debt service ratios and determining your maximum affordability.
Acronym for the four elements of a mortgage payment: principal, interest, taxes and insurance.
A unit for measuring fees related to a loan. A point equals 1% of a mortgage loan. Some lenders charge “origination points” to cover the expense of making a loan. Some borrowers pay “discount points” to reduce the loan’s interest rate.
Taking the existing mortgage – along with its current rate and terms – from one property and transferring it to another. A portable mortgage allows a borrower to transfer the terms and conditions from an existing property loan to a new property loan.
A grouping of investment or financial assets – stocks, bonds, commodities, currencies, cash equivalents, mutual funds, exchange-traded and closed funds, real estate, arts and private investment, etc.
A type of mortgage that may be carried by the borrower from one home purchase to the next, portable.
With a portable loan, the borrower can sell their house and move without having to refinance their loan, saving money in exit fees and new application fees. To qualify for portability the new loan amount may need to be the same or less than the existing loan, and the borrower may also have to pay the lender a portability fee, however, this fee is often much less than the costs to refinance.
In a real estate transaction, possession occurs when the buyer takes ownership of a property after signing closing documents. After the sale is recorded with the local government and the purchase funds have been received by the seller, ownership of the property is transferred to the buyer.
The mortgage rates initially offered by a bank which a borrower is then expected to negotiate down.
Power of Attorney
A legal document that grants an individual the right to act on behalf of another. For example, if a borrower dies or becomes incapable of managing his or her home loan or mortgage, a power of attorney assigned by that individual could manage his or her mortgage and related decisions.
Power of Sale
A clause generally inserted in mortgages giving the mortgagee the right and power, on default by the mortgagor of monies due, to sell the mortgaged property by public auction, private contract or tender.
The commitment from a lender stipulating how much money a person may borrow and under what terms and conditions.
A document from a lender or broker that estimates how much a potential homebuyer could borrow based on current interest rates and a preliminary look at credit history. The letter is a not a binding agreement with a lender. Having a pre-approval letter can make it easier to shop for home and negotiate with sellers. It is better to have a pre-approval letter than an informal pre-qualification letter.
The practice of a lender employing unscrupulous tactics to entice, induce, and assist a borrower in taking a loan that they otherwise are unable to pay back reasonably.
A secured or unsecured loan containing terms and conditions heavily favoring a lender. These loans are often detrimental to the borrower. Many predatory loans have high-interest rates, high fees, and are designed to strip the borrower of equity. They typically target poor or less educated populations who may unexpectedly fall into their traps.
A lender that is closely affiliated with a mortgage brokerage based on reputation and other industry factors.
Preliminary Title Report
A preliminary title report is the basis for the issuance of a title binder or title commitment. In short, a preliminary title report sets forth the conditions under which a title insurance company will issue a title insurance policy. The preliminary title report reveals title defects and other matters which must be dealt with in order for a seller to convey clear and marketable title and issuance of a title insurance policy.
Once escrow is opened, a preliminary title report is issued. This report provides buyers with information on a property’s title and whether there are any easements, liens and encumbrances on a particular property.
The amount often stated as a percentage, paid in addition to the face value of a mortgage when the mortgage is being purchased.
A loan that is paid off early.
A clause inserted in a mortgage, which gives the mortgagor the privilege of paying all or part of the mortgage debt in advance of the maturity date.
The flexibility to increase the monthly mortgage payments and/or make a lump sum payment against the principal of the outstanding mortgage balance each year.
A provision in a mortgage contract that requires the borrower to pay a penalty (usually equal to an amount of interest) if the mortgage is paid off within a certain time period.
The evaluation of the creditworthiness of a potential borrower by a creditor to provide a pre-approval. The lender gives information about the exact amount the borrower is able to borrow. This is usually an informal process and does not secure the amount or the application.
An informal, but not binding assessment of how much money a person could potentially borrow from a lender. Pre-qualification is an opinion rather than a promise and is thus different from pre-approval.
The lender’s best estimate on how much loan a borrower can afford based on the information provided to the lender. A pre-qualification letter is a less formal version of a pre-approval letter. The pre-qualification letter is a lender’s intent to provide the borrower with a loan of a specific amount, but it is contingent on a large number of conditions. It’s often the first step in the mortgage application process, but it doesn’t hold any weight.
The amount of money, determined by the interaction of buyers and sellers, that a buyer must pay to acquire a good, service, or resource.
Prime Lending Rate
The rate of interest charged on loans by chartered banks to their most creditworthy customers.
The lowest rate a financial institution charges its best customers.
A conforming loan, one whose loan limits fall within those set by CHMC and usually awarded to borrowers with good credit.
Primary Mortgage Market
The amount borrowed from a lender. This is the amount upon which the interest payment is computed. All loans start as principal, and for every designated period that the principal remains unpaid in full the loan will accrue interest and other fees. The same is true for investments, but instead of owing more on top of the principal the investor is earning more.
Principal and Interest Loan
A loan where both the principal amount and the interest charges are repaid over the term of your loan.
Principal Place of Residence (PPOR)
The property a person lives in most of the time rather than an investment or holiday home.
A loan that is offered by an individual or a company who is not a a traditional mortgage lender or alternative institutional lender. The private lender can be a small, medium or large mortgage investment company (known as a MIC) or even individual investors who are lending their own money to borrowers. A private mortgage doesn’t have the same restrictions as a traditional mortgage from a bank.
Private Mortgage Insurance (PMI)
A form of insurance that protects the lender by paying the costs of foreclosing on a house if the borrower stops paying the loan. Private mortgage insurance usually is required if the down payment is less than 20% of the sale price.
Private Mortgage Lenders
Individuals or organizations who wish to invest their surplus cash for short terms to make profits from private mortgage loans. They view high-risk borrowers and properties as investment opportunities. The Private mortgage lenders like B lenders, are typically equity-based lenders. They lend money for property purchases secured by the property as the collateral. This means that the lenders are more interested in the available equity of the home than they are of the applicants’ income and credit (to some degree).
Private Sale or Treaty
A process of selling a real estate property without employing the help of a real estate agent. This will require the owner to do their own advertising and open inspections but will mean they avoid paying a percentage of their sale price as a commission to an agent.
Progress Advance Loan
A loan made usually to a builder where funds are advanced from time to time as construction progresses.
A written promise that one party will pay the other party by a specified time. As long as it’s signed by both parties, a promissory note can be as simple as jotting down some words on paper. Promissory notes are different from contracts in that contracts spell out all the terms of a legal agreement while promissory notes only cover when, how, and how much someone is paid.
A policy that provides financial reimbursement to the owner or renter of a structure and its contents in the event of damage or theft. Property insurance can include homeowners insurance, renters insurance, flood insurance and earthquake insurance. Personal property is generally covered by a homeowner or renters policy, unless it is of particularly high value, in which case it can usually be covered by purchasing an addition to the policy called a “rider.” If there’s a claim, the property insurance policy will either reimburse the policyholder for the actual value of the damage or the replacement cost to remedy the damage.
Someone who manages a property and its tenants on behalf of the property owner.
A real estate levy, calculated by a local government, which is paid by the owner of the property. Property tax in Ontario has two components: a municipal portion and an education portion.
The rates for the municipal portion of the tax are established by each municipality. The rates for the education portion of the tax are established by the Minister of Finance and help to fund the elementary and secondary education system in Ontario.
Property taxes are calculated using the Current Value Assessment of a property, as determined by the Municipal Property Assessment Corporation (MPAC) and multiplying it by the combined municipal and education tax rates for the applicable class of property.
The worth of a piece of real estate based on the price that a buyer and seller agree upon. According to economic theory, the value of a property converges at the point where the forces of supply meet the forces of demand. In other words, the value of a property at any given time is determined by what the market will bear.
An adjustment made on a payment to account for unused service so that buyer and seller each pay their respective share of costs in proportion to the time in which they own the property.
Information that is available to any member of the public. Public records like a bankruptcy, tax lien, foreclosure, court judgment or overdue child support harm your credit report and credit score significantly.
A purchase agreement in real estate is a document outlining the purchase price and other conditions associated with the transfer of title. Real estate purchase contracts contain critical information, including the purchase price, mortgage contingency provisions, the earnest money deposit, down payment requirements, and many other terms that summarize the conditions of the transfer of title or sale.
The actual price a real estate property is purchased for.
A loan that the seller of a property issues to the buyer of a home as part of the property transaction. Also known as owner or seller financing, with a purchase-money mortgage the seller takes the role of the bank in offering the money to buy the home.
A legal instrument used to transfer the whole of the ownership of a property from one party to another. Also, it can be used to remove any person’s name from the original title however has no warranty as the grantee, the person transferring the property, has the same power as the grantor, the person receiving the property. It is typically best used with transfers of property between family members.
A loan that a consumer can be reasonably expected to pay. Mortgage lenders are required to consider a consumer’s ability to repay home loans before extending them credit. To be eligible for a qualified mortgage, borrowers must meet certain requirements; these requirements are meant to determine a borrower’s ability to repay their mortgage.
Qualified Syndicated Mortgage
A syndicated mortgage that meets all of the following criteria:
• It is negotiated or arranged through a mortgage brokerage.
• It secures a debt obligation on property that,
o is used primarily for residential purposes,
o includes no more than a total of four units, and
o if used for both commercial and residential purposes, includes no more than one unit that is used for commercial purposes.
• At the time the syndicated mortgage is arranged, the amount of the debt it secures, together with all other debt secured by mortgages on the property that has priority over, or the same priority as, the syndicated mortgage, does not exceed 90 percent of the fair market value of the property relating to the mortgage, excluding any value that may be attributed to proposed or pending development of the property.
• It is limited to one debt obligation whose term is the same as the term of the syndicated mortgage.
• The rate of interest payable under it is equal to the rate of interest payable under the debt obligation.
A syndicated mortgage that secures a debt obligation incurred for the construction or development of property is not a qualified syndicated mortgage.
The mortgage rate that one must qualify for when applying for a variable rate or a term less than 5 years, so that if rates increase, the borrower can continue to make payments.
As calculated by lenders, the percentage of income that is spent on housing debt and combined household debt.
Percentage a borrower pays for the use of money, usually expressed as an annual percentage.
A time period (typically 30-120 days) during which a borrower can lock in the current best mortgage rate. If rates go down during this time, most lenders will honour the lower rate.
A freeze of the interest rate on a mortgage loan for a period of time. It is a guarantee from a lender that the mortgage rate offered to a borrower will remain available to that borrower for a specific amount of time.
Rate of Return (RoR)
The net gain or loss of an investment over a specified period, expressed as a percentage of the investment’s initial cost.
An inverse relationship exists between a mortgage interest rate and the upfront fees paid. When borrowers opt to pay more upfront, the lower the interest rate becomes. It is much better to buy down the rate for borrowers planning to be in a home for more than five years.
The process of applying for credit with several lenders to find the best interest rate, usually for a mortgage or a car loan. If done within a short period of time, such as two weeks, it should have little impact on a person’s credit score.
Comparison of two figures used to evaluate business performance, such as debt/equity ratio and return on investment.
A feature of some mortgage lines of credit, including home equity lines of credit (HELOC).
A process when the loan balance has changed significantly from the original amount – for example, if the borrower has made a lump-sum payment or been paying their loan for some time – they may have their lender recalculate the minimum repayment required to repay the outstanding amount over the loan term. It is also called loan recasting.
A tangible item that has intrinsic value due to its substance and properties.
The physical land and appurtenances including structures affixed thereto.
Real Estate Investment Trust (REIT)
An investment trust that specializes in investing in real-estate related investments including mortgages, construction loans and real property in varying combinations. Investors can invest in the collection of properties a REIT company manages, and benefit from the dividends earned. The investors also bear the cost of taxes and any other losses incurred.
Real Estate Agent
A licensed professional who negotiates the sale of real estate, typically on behalf of its owner. A buyer’s agent represents the buyer in a real estate transaction.
Real Estate Bubble
Also referred to as a “housing bubble,” occurs when the price of housing rises at a rapid pace, driven by an increase in demand, limited supply and emotional buying. Once speculators recognize that housing prices are on the rise, they enter the market, further driving up demand. The phenomenon is called a bubble because at some point it will burst.
Real Estate Owned (REO)
A term referring to properties owned by banks as the result of a foreclosure.
Real Rate of Return
The rate of return on the investment minus the inflation rate.
A real estate broker or agent who is affiliated with the National Association of Realtors.
The interests, benefits, and rights inherent in the ownership of the physical real estate. It is the bundle of rights with which the ownership of real limitations, and does not include personal property.
The transfer of a title to the borrower after a mortgage has been fully paid.
A type of loan whereby the lender can seek financial damages in the event that the borrower defaults in his loan payments. With a recourse loan, if the value of the asset used as collateral is not enough to cover the loss, the lender may seize other assets or extract compensation on top of the collateral.
The return of an investor’s principal on a fixed income security such as a bond, mutual fund or preferred stock. Also, the redemption is referred as a process of paying off a mortgage completely.
A facility attached to the borrower’s home loan, that allows the borrower to take out any extra repayments that they have made over the required minimum repayments on their home loan. Any additional repayments the borrower makes goes towards their ‘available redraw’ which can be drawn down when required.
Payments made by service providers to other parties as quid pro quo for referring customers. For example, a title company provides something of value to a Realtor or lender for sending a customer who requires title insurance.
A process of revising and replacing the terms of an existing mortgage or a loan agreement. Most borrowers choose to refinance so they can lower their interest and shorten their payment term, or to take advantage of turning some of the equity they have earned on their home into cash. There are two main types of refinancing: rate and term refinance and cash-out refinance.
A system of land registration where all interests in land are recorded in chronological order. The registrar assumes no responsibility for the documents legal effect.
The payment for natural resources.
A type of price control that typically sets the rental rate for an apartment below the market rate.
A contract that allows consumers to get immediate delivery on new furniture, appliances, or other items. There is no down payment or credit check required. If the consumer keeps the rental item for a minimum amount of time, there is no penalty charged for returning it. If the renter misses a payment, the contract requires that he or she return the item.
Rentable Area Multiple Tenancy Floors
A concept used for measuring floor area in commercial building. It is calculated by measuring to the inside finish of permanent outside building walls, or glass line if at least 50% of the outer wall is glass, to the office side of corridors and/or other permanent partitions, and to the centre line of joint partition walls.
Rentable Area Single Tenancy Floors
A concept used for measuring floor area in commercial building. It is calculated by measuring to the inside finish of permanent outer building walls or from the glass line where at least 50% of the outer building wall is glass. It includes all areas within outside walls less areas not used exclusively by the tenant.
A limit on the number of renters allowed in a condo building or development (also known as owner-occupancy rates). It is a mechanism used to limit the number or percentage of units that may be rented at any one time in a community. Some condominiums also have a rental cap which limits the number of renters allowed in the condominium building at one time.
The rental cap on the property may affect property financing as some mortgage loans have rental cap requirements.
A statement listing the tenants in occupancy, the area or unit occupied by each, their lease expiry date and rent payable and other leasing details which may be required.
See Mortgage Renewal.
The current balance owed on a mortgage.
Remaining Mortgage Term
The current amount of time remaining in the length of the mortgage.
A break from repayments offered to borrowers who are ahead in their repayments.
The period of a loan when a borrower is required to make payments. Usually applies to home equity lines of credit. During the repayment period, the borrower cannot take out any more money and must pay down the loan.
Mortgage payments laid out over the life of the loan. Some mortgage calculators let borrowers see their repayment schedule based on the amount of the home loan, the interest rate and monthly payments. See also Amortization.
The amount that an entity would have to pay to replace an asset at the present time, according to its current worth.
The action of a creditor to claim property (cars, boats, equipment, etc.) that was used as collateral for the debt which is significantly overdue.
A savings account or other liquid asset managed by a condominium, business or individual for anticipated future expenditures, such as major repairs and improvements. Reserve funds usually are set aside in an account separate from the general operating funds.
A person who is a legal permanent resident, but not a citizen.
Residential Real Estate
An area developed for people to live on. As defined by local zoning ordinances, residential real estate cannot be used for commercial or industrial purposes. Such laws vary from location to location and can restrict how many buildings are allowed on a single block and what kinds of municipal services reach those buildings.
Residential Mortgage-Backed Security (RMBS)
A security that relies for payment on cash flows generated by a pool of residential mortgage debt obligations.
A mortgage in which basic terms — such as interest rate, term and monthly payment — have been changed to prevent foreclosure.
A private multi-residence housing facility intended for the elderly.
The sum of money gained or lost on investment compared to the invested amount. Return is synonymous with profit, yield, capital gain, interest, dividend or revenue produced by an investment. It is usually stated as a percentage of the amount invested. For example, a $25 gain on a $100 investment would have a 25 percent return.
Return on Equity (ROE)
Also known as return on common equity (ROCE), is a measure of a business’s profitability. Specifically, it is a ratio describing the rate of profit growth a business generates for shareholders and owners. In real estate, that is the percentage that the annual cash flow after debt service is of the equity in the property.
Return on Investment (ROI)
Also called rate of return or yield, is a measure of the performance and efficiency of an investment. ROI is represented as a percentage of profit yielded by an amount of capital after costs and expenses over a certain period of time. In real estate, that is the amount of profit a property generates divided by its value. A $100,000 property that generates $8,000 per year would produce an 8% ROI.
The total amount of money received by a business during a specified period. This includes all of the money that the company’s business activities generate — in other words, its sales of goods or services.
A type of mortgage designed for homeowners over 55 years of age, who wish to access the equity they may have built up in their home in order to assist them with costs associated with aged care. There is no requirement for repayment of the loan until the end of the loan term or the death of the borrower.
Right of Survivorship
The distinguishing feature of joint tenancies and tenancies by the entirely which provide that, where land is held in undivided portions by co-owners, upon the death of any joint owner, his interest in the land will pass to the surviving co-owner, rather than to his heirs or devisees.
An easement or a privilege to pass over the land of another, whereby the holder of the easement acquires only a reasonable and usual enjoyment of the property, and the owner of the land retains the benefits and privileges of ownership consistent with the easement.
Right of way is also used to describe that strip of land upon which railroad companies construct their roadbed. In this context, the term refers to the land itself, not the right of passage over it.
In terms of credit, risk refers to the likelihood of a borrower being able to make payments in a timely fashion and, ultimately, to pay off a loan. Naturally, lenders prefer low-risk borrowers to those who pose a high risk. Lenders determine risk by reviewing a person’s credit score and credit history.
The higher the perceived risk, the higher the interest rate the borrower will pay.
Another term for a credit score. (See Credit Score, FICO Score, Beacon Score and Empirica Score).
An investor’s ability to psychologically endure the potential of losing money on an investment. A person’s risk tolerance can change throughout his life and determines what type of investments he or she is likely to make.
The process when the costs of a loan are added to the principal balance. Roll in, which is also called “rolling” or “to roll,” is commonly used by borrowers who either don’t have the money to pay the loan costs upfront or don’t want to pay loan costs out of pocket.
Rolling is fairly common, so most loan costs can be included in the loan balance, especially in the case of a mortgage. Lender fees, such as origination fees, mortgage fees are frequently rolled in, while “prepaids,” like per diem interest, cannot be included in the roll in.
Roll Over Mortgage
A type of loan where the interest rate is set for a specific term. At the end of this term, the mortgage is said to “roll-over” and the borrower and lender may agree to extend the loan. If satisfactory terms cannot be agreed upon, the lender is entitled to be repaid in full. In this case, the borrower may seek alternative financing.
A fixed regular payment made by an employer to an employee in return for work. Salaries are generally an annual amount paid monthly or bimonthly for a specified number of hours per week.
A percentage of the principal amount of the mortgage held back by the mortgagee until the property in question has been sold to a party satisfactory to the mortgagee who has assumed the responsibility of the mortgage by the appropriate legal document.
A technique in which a seller deeds property to a buyer and the buyer simultaneously leases the property back to the seller usually on a long-term basis.
Sale of Loan Portfolio
A type of transaction when a lender sells off a large batch of its loans, which gives the lender more cash to fund additional loans. Loan portfolio sales are common in the mortgage industry in the USA.
The process of retrieving documents evidencing events in the history of a piece of real property, to determine relevant interests in and regulations concerning that property. Before an owner is able to sell his/her property the lender and the purchaser will carry out searches to make sure he /she is entitled to sell the property and there are no encumbrances on it.
An additionally purchased property, often a vacation or a rental property.
Second Home Mortgage
A mortgage used to purchase property, often a vacation or a rental property.
A mortgage registered secondly on title after another mortgage. A third mortgage is registered thirdly and so on.
Financing real estate with a loan, or loans, that are subordinate to a first mortgage.
Secondary Mortgage Market
The segment of the mortgage and real estate securities market that deals in the investment of mortgages – not direct mortgage lenders. Mortgage originators sell home mortgage loans to investors on the secondary mortgage market. Loan aggregators buy mortgage loans from originators, bundle them together into mortgage-backed securities (MBS), and sell them to investors such as pension funds and hedge funds.
Mortgages produce an income for those who hold them, be it a lender or other investor. Therefore, securitization is the process whereby assets that produce an income stream such as mortgages, are pooled and converted into saleable securities for investors, mortgages are packaged into low-risk bonds, and then issued to investors.
An asset that guarantees the lender all or part of the loan until the loan is repaid in full. It is usually the property the borrower borrowed to buy which is the security for the loan.
Sometimes called a credit freeze, is when a person blocks access to their credit score, so this data won’t be released without permission. The purpose of a security freeze is to avert unauthorized use of the person’s credit score which, among other things, makes it difficult for someone to fraudulently obtain credit in their name.
A loan that requires a piece of property (such as a house or car) to be used as collateral. This collateral provides security for the lender since the property can be seized and sold if you don’t repay the debt. A common example is a mortgage loan. It is also called Secured Loan.
A loan that is backed by collateral, such as an auto loan or a loan that finances the purchase of some appliances or furniture.
A person who earns living from any independent pursuit of economic activity, as opposed to earning a living working for an employer (a company or another individual). A sole proprietor, freelancer or an independent contractor are examples of self-employed persons.
Self Employed Mortgages
The mortgage financing process those who are self-employed have to go through, which includes submitting personal tax Notices of Assessment with the mortgage application, and potentially even some third-party income validation. There are, however, some lenders who cater to the self-employed and will look at credit history over income generation.
A form of financing in which the seller of a property accepts a down payment and agrees to accept payments until the property is paid for.
A real estate term, indicating that there are more real estate buyers in the market than there are sellers. When demand is higher than the supply, home prices increase, which benefits sellers.
Buildings that are partially attached to each other.
Semi-Monthly Mortgage Payments
A mortgage payment plan that allows the borrower to make payments 2 times per month, for instance, on the 1st and 15th of each month. Sometimes, semi-monthly payments are referred to as bi-weekly payments, but the two methods are not necessarily the same.
If payments are structured to be paid on two dates per month, such as the first and 15th days of each month, the borrower will make 24 annual payments. If the payments are made bi-weekly, such as every other Friday, the borrower will make 26 payments annually. The two methods of payment can make a great deal of difference in the ultimate total of payments made, and the total interest paid. Bi-weekly payments (if accelerated) are the equivalent of making 13 monthly payments, whereas semi-monthly payments are the equivalent of making 12 monthly payments. Non-accelerated bi-weekly payments are a little less per payment period.
A complex mathematical formula that evaluates financial data to predict a borrower’s future behavior. Developed by the credit bureaus, banks and FICO, there are thousands of slightly different scoring models used to generate credit scores.
A home loan in which the lender offers a below-market interest rate in exchange for sharing in the profit when the home is sold. Usually done only with private funds/lenders.
In real estate when a financially distressed homeowner sells his or her property for less than the amount due on the mortgage. The buyer of the property is a third party (not the bank), and all proceeds from the sale go to the lender. The lender either forgives the difference or gets a deficiency judgment against the borrower requiring him or her to pay the lender all or part of the difference between the sale price and the original value of the mortgage. In some states, this difference must legally be forgiven in a short sale.
Useful tool for lenders and homeowners in the USA when foreclosure could be a worst-case scenario.
Unsecured personal loans offered by banks, credit unions, and other financial institutions. Instead of relying on the applicant’s assets as collateral, a signature loan relies on a borrower’s signature as a promise to pay. Alternative names for this type of loan are good faith loans or character loans.
A party who has signed an agreement where there are multiple parties who have signed for instance a joint application for a loan there would be more than one signatory to the loan.
The interest calculated on the principal portion of a loan or the original contribution to a savings account. Simple interest does not compound, meaning that an account holder will only gain interest on the principal, and a borrower will never have to pay interest on interest already accrued.
Simple Interest Loan
A simple interest loan is one in which the interest has been calculated by multiplying the principal (P) times the rate (r) times the number of time periods (t). The formula looks like this: I (interest) = P (principal) x r (rate) x t (time periods).
A private unit intended for occupancy by a single family.
An option allowed by many lenders for borrowers to skip between 1 and 4 monthly mortgage payments each year without any penalty. The interest accrued during the skipped periods will instead be added to the principal, and monthly payments will then be recalculated once they resume. With a skipped payment, it will take longer to pay down the mortgage balance, plus the interest is still charged and added to the mortgage balance.
Also known as a soft pull, is a preliminary review of a person’s credit history by a lender or other entity. This may be done without the consumer’s consent — by a credit card issuer, for example — looking to preapprove potential customers for certain card offers. Soft inquiries do not hurt a person’s credit score.
A levy that homeowners’ associations or local governments impose to pay for the installation or repair of common services when the cost of such work exceeds what can be met through normal budgets.
A written document that will outline all the conditions and materials that have been used in construction.
Speculative Home Market
A market in which investors snatch up homes for quick re-sale hoping to cash in on improving markets; considered risky by some.
Split Rate Home Loan
A loan that combines two types of loan, a fixed interest rate loan and a variable rate loan. Different rates of interest are paid on each portion of the loan, and each split will also be entitled to different features. For example, a borrower may be able to make additional repayments and use a redraw facility on their variable loan portion, where the interest rate and repayments will stay the same for the fixed-rate portion. The borrower can also choose the split and allocation of interest rates, for example, 50-50 or 60-40.
Standard Variable Rate
The interest rate charged on a lender’s most feature packed loans and allows your interest rate to be cut when official rates fall, but also exposes you to interest rate rises. In exchange for this movability is flexibility of loan features such as redraw, portability, transaction account and offset account.
An agreement by a lender to provide a certain amount of money on specific terms in the future. Neither party expects funding of the loan. This commitment enables the borrower to arrange construction financing from other sources. The commitment is issued for a fee and the lender is willing to disburse the committed funds in the event that a permanent loan on more favorable terms is not obtained.
A sum of money given by the borrower to the lender to hold a mortgage commitment for a certain period of time.
A mortgage that provides for equal, regular lump sum payments of principal, usually quarterly, plus accrued interest.
A written record prepared by a financial institution, usually once a month, listing all transactions for an account, including deposits, withdrawals, checks, electronic transfers, fees and other charges, and interest credited or earned.
Statement of Adjustment
A document prepared by the real estate lawyer that outlines the closing costs the buyer or seller will have to pay on the closing day.
A fixed-rate home loan on which payments are lower at the beginning, typically for two years, and which then rise.
An expedited refinance that requires limited underwriting and may even forego the need for an appraisal.
The act of dividing land into pieces that are easier to sell or otherwise develop.
A mortgage whose priority is below that of another mortgage, i.e., a second or third mortgage or a home-equity loan.
A borrower with poor credit, who can borrow only from sub-prime lenders who specialize in dealing with borrowers who have poor credit. Such borrowers pay more than prime borrowers, and are sometimes taken advantage of. Not all borrowers who deal with sub-prime lenders, however, are sub-prime borrowers.
A lender who specializes in lending to sub-prime borrowers.
The network of sub-prime lenders, mortgage brokers, warehouse lenders and investment bankers who make possible the delivery of loans to sub-prime borrowers.
A loan offered to high-risk individuals (with low down payments and/or bad credit scores who cannot qualify for a traditional mortgage) and thus carry the highest interest rates.
An equity created by a purchaser or homeowner by performing work on a property being purchased or refinanced.
A fee the borrower pays when chooses to change from one loan type to another while retaining the same lender. The switching fee is used to cover the lender’s administration costs to complete this change.
Securities, instruments, or other property deposited by two or more persons with a third person, to be delivered on the performance of a certain event.
A mortgage or loan offered by a group of lenders referred to as a syndicate—who work together to provide funds for a single borrower. Typically, they involve investors becoming the lender to a developer to build a project, such as a condo, low-rise, single-family or commercial development, although a single residential mortgage can also be syndicated. The loan can involve a fixed amount of funds, a credit line, or a combination of the two.
The net amount of income received after the deduction of taxes, benefits, and voluntary contributions from a paycheck. It is the difference between the gross income less all deductions. Deductions include federal, provincial and local income tax, employment insurance premium, retirement account contributions. The net amount or take-home pay is what the employee receives.
A first mortgage loan that is committed and expected to be made upon completion of a property with the loan proceeds to be used to repay an interim or construction loan.
A claim, or obstacle, to the sale of property because of unpaid taxes. The property’s title can’t be transferred until liens are paid.
An adjustable-rate mortgage, or ARM, that offers seemingly low introductory interest rates, or what lenders call teaser rates, to attract clients to switch to a new lender or to take out a new loan.
ARMs adjust after a certain period, such as the 5/1 ARM with a low rate for five years and adjusting each year after that. A true teaser loan offers an even lower rate for a short period, before adjusting to the normal ARM rate.
Also known as an introductory rate, is a below-market interest rate that lasts for a limited period of time.
The right to occupy the property.
Tenants in Common
A form of ownership of real property where two or more people share the holding of a property. This may be an equal or unequal share, however, when one person dies, their share of the property forms part of the estate and does not pass onto the other tenants. While similar to a joint tenancy, in that tenants in common each own the property, they may own different proportions of interest.
An ownership of property by two or more persons, each of whom has an interest which may be voluntarily transferred by alienation devise or descent and is not subject to any rights of survivorship.
A period of time until a loan or any type of deposit or investment achieves maturity. In the case of a mortgage, it is the length of time the mortgage will take to be repaid or a portion of that loan. For example, the loan term may be 30 years, but the term of the fixed portion of that loan may be 5 years.
Terms can be expressed in months or years, depending on the details of the account or loan.
A non-amortizing mortgage under which the principal is paid in its entirety upon the maturity date. Sometimes called a straight loan.
A row of buildings all connected.
A form of securing loans, where the guarantor is liable for the outstanding debt including interest in case the borrower defaults.
The evidence by which the owner of land has lawful ownership thereof. The term is frequently associated with real estate law, where a legal document called a deed provides evidence of the transfer of title between buyer and seller.
A signed legal document that transfers the title of an asset to a new holder, granting them the privilege of ownership. It contains the legal description of a property and details the ownership of the property.
Fees for a title search, transfer ownership of the property, register a new mortgage or discharge an old mortgage on a property.
A type of insurance that protects buyers of real estate and issuers of mortgage loans from defects or problems with a land title in the transfer of property. If there is a title dispute resulting from a sale, the title insurance company may be responsible for paying specified legal damages, depending on the type of policy.
Title Insurance Policy
A contract by which the insurer, usually a title insurance company, agrees to pay the insured a specific amount for any loss caused by defects of title to real estate, wherein the insured has an interest as purchaser, mortgagee or otherwise.
A personal loan secured by the title of an asset, most commonly.
A report that reveals any competing claims, liens, or other problems relating to a property. A title report is required before title insurance will be issued. Also known as a “Preliminary Title Report” or “Prelim.”
An examination of public records by a title company, lawyer, or escrow agent to determine the history of ownership of a particular piece of property and identify any liens, encroachments, easements, restrictions, or other factors that might affect the title. This step must be completed before a buyer can purchase title insurance.
Total Debt Service Ratio (TDS)
The ratio of an amount equal to the annual mortgage charges and acceptable instalment account payments to an amount equal to the effective gross annual income of the borrower. It takes into account the mortgage payments, property taxes, approximate heating costs, and 50% of any maintenance fees, and any other monthly obligations (i.e. personal loans, car payments, lines of credit, credit card debts, other mortgages, etc.), and this sum is then divided by the gross income of the applicants. Ratios up to 40 % are acceptable.
A building complex with several houses that are either attached or built very close together. Townhouses differ from condominiums in that townhomes allow for ownership in the land on which they are built.
The official term for an account listed on a credit report. Each account’s details (including payment history, balances, limits and dates) are recorded in a separate tradeline. Trade lines are used to determine consumers’ credit scores.
A swap of property, such as real estate or a car, as part of a down payment for other real estates.
A document registered in the municipal office responsible for land titles that records any change of property ownership.
Transfer of Charge
Assignment of a mortgage.
The taxes paid when the title to a piece of real property changes hands from one owner to another. This tax applies to property that requires a title and is imposed when the title is transferred to the new owner’s name.
One of the three national credit bureaus that collects and provides consumer financial records. TransUnion operates the TrueCredit and FreeCreditProfile brands.
A legal relationship between one person, the trustee, having an equitable ownership or management of certain property and another person, the beneficiary, owning the legal title to that property. The beneficiary is entitled to the performance of certain duties and the exercise of certain powers by the trustee, which performance may be enforced by a court of equity.
Securities, instruments, or other property deposited by two or more persons with a third person (trustee), to be delivered on the performance of a certain event.
A written instrument duly executed, sealed, and delivered, conveying or transferring property to a trustee, usually but not necessarily covering real property.
An agreement in writing conveying property from the owner to a trustee for the accomplishment of the objectives set forth in the agreement.
The person or institution that supervises property and assets in a trust. Trustees oversee several different types of financial situations, including trusts, bankruptcies and certain types of pensions or retirement plans. It is the trustee’s job to make the best possible decisions for beneficiaries, those who benefit from the property or assets over which the trustee is in charge.
A term used by real estate agents to indicate that a home is move-in ready. This means that all appliances are in working condition and there are no obvious structural or electrical issues with the home. However, this doesn’t mean that an inspection is unnecessary if you decide to make an offer on a home marketed in turn-key condition. Homes that aren’t in turn-key condition may include new construction that isn’t completed at the time an offer is made, or a home that requires extensive repairs.
See Wrap-Around Mortgage.
A property that is not affected by liabilities, charges or restrictions such as easements on the property, mortgages or leases which can affect the ownership.
A commitment issued by a mortgage insurer stating the mortgage and terms that it will insure.
A mortgage whose balance exceeds the value of the property. Also known as an “upside down” mortgage.
An individual working for mortgage lenders who determines whether or not a borrower’s loan is approved. If a borrower gets a loan from a mortgage broker, the broker sends the loan documents to the lender’s underwriter. The underwriter evaluates the entire loan application, including the appraisal of the home, and decides whether to approve or decline the application based on the risk presented by the loan.
Underwriters often request additional information while evaluating the loan application. For example, underwriters may ask for more pay stubs and documentation of the origins of funds used for the down payment.
The process conducted when a borrower’s loan application is analyzed to determine the amount of risk involved in lending. Underwriting reviews the applicant credit history, and includes a judgement of the property’s value.
Income such as interest, dividends, capital gains, alimony, or other forms of passive income an individual did not actively work to earn.
The fees paid the buyer must pay out of pocket once the buyer’s offer on a home has been accepted. Upfront costs include but not limited to earnest money, the inspection fee, and the appraisal fee.
The fees the buyer is obligated to pay upfront for any loan or property purchase they may include establishment of legal fees or LMI as well as the government fees associated with purchasing a property.
The maximum legal rate for interest, discounts, or other fees that may be charged for the use of money.
A term used to describe a situation in which property (such as a house) is vacant when it is sold so that the new owner can move in immediately. This may refer to the previous owners moving out or if there are tenants they will vacate before purchaser take ownership.
The percentage of vacant units in a rental property, like an apartment building. A low vacancy rate indicates strong rental interest, while a high vacancy rate can mean that units are not renting well.
Variable Interest Rate
An interest rate which varies in line with money market rates.
Variable Interest Rate Mortgage
A type of home loan in which the interest rate is not fixed. Instead, interest payments will be adjusted at a level above a specific benchmark or reference rate. Lenders can offer borrowers variable rate interest over the life of a mortgage loan. They can also offer an adjustable-rate mortgage which includes both a fixed and variable rate that resets periodically.
Variable Terms Mortgage
A mortgage that provides for variation of specific terms of the loan particularly the interest rate and or the amortization period, on a predetermined formula during the loan term.
A change made to any part of the loan contract to satisfy the borrower’s lending or application requirements, or to encompass changes or additions to the borrower’s loan product.
The person or party who is selling the property.
A notice registered on title by the vendor, protecting the vendor, for the unpaid balance of the purchase price. It is usually collaterally secured by a mortgage.
A mortgage on real property given by a purchaser to the seller to secure a portion of the purchase price and delivered at the same time that the property is transferred, as a simultaneous part of the transaction.
Weekly Mortgage Payment
A mortgage payment plan that allows the borrower to pay a quarter of the monthly amount due each week. The monthly mortgage payment is multiplied by 12 months and divided by the 52 weeks in a year or 52 payments per year.
The sum of the cash and highly liquid investments that a business has on hand to pay for day-to-day operations. Working capital is equal to the total of a company’s current assets minus its total current liabilities.
A new mortgage registered on title which encompasses a prior existing mortgage for a lower amount and usually for a lesser rate of interest. Payments under the new mortgage include the payments under the original mortgage, and the new mortgagee undertakes to service the prior debt. This is also called Umbrella Mortgage.
A form of written command in the name of sovereign, state, court, etc., issued to official or other person and directing him to act or abstain from acting in some way.
The return of a property, as a percentage, calculated by dividing the net income of a property by its market value or price.
The representation of the relationship between an interest rate and the time to maturity of a debt. The shape at any given time will determine the difference between.
Yield to Maturity
A percent returned each year to the lender on actual funds borrowed considering that the loan will be paid in full at the end of maturity.
Zero Down Mortgage
A loan that doesn’t require a down payment. The borrower obtains a mortgage for 100 percent of the purchase price.
A set of rules and regulations established by the municipal authorities to outline the permitted uses for the land, and the buildings on that land.
An exception to a zoning ordinance that’s granted on a case-by-case basis by a local government.