“A” Mortgage Lenders
The “A” mortgage lenders are 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. These mortgage lenders are usually the 1st choice for borrowers who seek a mortgage approval but not only because they offer good rates, but also due to the fact that they are comfortable with them. With an A lender, you qualify for a mortgage based on your income and credit.
Abstract of Title
An abstract of title is the written history of a piece of land to document all transactions associated with that land from the time the property 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.
An acceleration clause is a contractual obligation requiring borrowers to pay off their mortgage in full if they don’t meet certain requirements outlined in the mortgage. Many debt instruments contain acceleration clauses, but they are most common in the real estate industry. Since most mortgages involve large sums of money, acceleration clauses protect lenders when borrowers miss payments or break any covenants defined in the mortgage.
Accelerated Bi-Weekly Mortgage Payment
It is a frequency of mortgage payment – when a monthly mortgage payment is divided by two and the amount is withdrawn from the bank account every two weeks.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
It is a frequency of mortgage payment – when monthly mortgage payment is divided by four and the amount is withdrawn from the bank account every week.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
An Accredited Mortgage Professional (AMP) is a designation for those in the mortgage industry that have passed a single national proficiency standard for mortgage professionals in Canada.
It is an interest that has been incurred on your loan but is yet to be charged and in turn paid by you. The interest on your mortgage is calculated daily, but you probably make your payments weekly, bi-weekly or monthly. Interest accrues from the time you made your last payment to the time you make your next payment.
Security over your loan guarantees your lender a portion of the value of your loan until the loan is repaid in full. Usually, the property you have taken out the loan to buy acts as the security over the loan, but in some cases, you may have a guarantor on the loan who puts up their property as security.
Additional repayments allow you to pay off your loan sooner. Any amount you pay above the minimum repayment amount is an additional repayment. The more you pay in addition to your minimum repayments the sooner you’ll repay your loan and the less interest you’ll pay. You can make additional repayments on an automated basis by paying a larger-than-required direct payment to your loan each month, or you can make additional repayments into your loan when you come across extra funds in your budget.
When you buy an existing property, you may have to reimburse the previous owner for legal or property tax or utilities that have already been paid. An adjustment is the process of allocating these expenses to be paid from your mortgage account.
On an ARM, the time between changes in the interest rate or monthly payment. 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.
The nominal interest rate used when calculating the interest expense on a loan.
An agent is a person or company authorized to act on behalf of the customer who is selling or arrange financing of the customer’s property.
Agreement of Purchase and Sale
A written agreement between vendor and purchaser in which the purchaser agrees to buy certain real property and the vendor agrees to sell upon terms and conditions as set forth in that agreement.
An all-in-one loan allows you to use your loan account and savings, cheque and transaction account by having all of your wages and other income paid into your loan account, giving you access to all of the funds above the value of your minimum home loan repayment amount. An all-in-one loan is also known as a home equity loan or a transactional loan. Because you are leaving all of your savings and everyday funds in your loan account until you need them, they work to offset the interest charged on your home loan.
An amount of money set aside for future investment in mortgages.
An alienation clause, 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.
Alternative mortgages are funds that originate from private individuals, mortgage investment companies (MICs) or mortgage finance companies (MFCc) who lend out for investment purposes. These lenders are willing to lend money out to borrowers who have equity in their property, need financing for a short term (up to 3 years), and don’t qualify for a mortgage by other means.
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.
An amenity is a feature of the home or property marketed as a benefit to the buyer. 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.
Amortization is the length of time of repaying a mortgage loan in full.
A table showing the amounts of principal and of interest comprising each level payment due at regular intervals and the outstanding principal balance of the loan after each level payment is made.
An amortizing loan is a type of debt that requires regular monthly payments. Each month, 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 at the end of the loan, a balloon payment is made.
The amount financed refers to a borrower’s loan principal and other costs and fees that have been rolled into the loan’s monthly payments. If the borrower makes a deposit, that money might be applied before the amount financed is set.
The amount financed plays a part in the interest rate determined by the lender. That’s because a larger loan deposit or mortgage down payment means the borrower is financing less.
The valuation of a property used to determine the market value. There are a number of times you may choose to get a home appraisal, including: when you’re buying a home, selling a home, refinancing, taking out equity, and even when you’re appealing a property tax assessment.
The fee used to cover the cost of appraisal which is requested by lenders. The appraisal fee is usually paid by the borrower as part of the loan application costs.
The appraised is 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.
Appreciation is the increase in a home’s value over time. How much a home appreciates each year depends on the local real estate market, inflation, and any improvements to the home. A home’s appreciation is calculated based on the fair market value of comparable homes 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.
ARM (Adjustable-Rate Mortgage)
A mortgage in which rate changes according to a formula specified in the loan document. ARM’s offer lower initial interest rates with the risk of rates increasing in the future.
Articles of Incorporation
The articles of incorporation are legal documents proving the ownership structure of a corporation. When a business is expanding or when the owners would like to limit their legal liability, a business may incorporate. As a legal corporation there are forms to file with the local registry office and at the end of the process a certificate of incorporation will be presented.
Annual Percentage Rate (APR)
APR stands for average ‘annual percentage rate’. This rate is the average of all the rates that are offered with a particular product. The APR includes not only the interest expense on the loan but also all fees and other costs involved in procuring the loan.
The APR should always be 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 your interest expense.
The asking price is the amount a home seller wants a buyer to pay to purchase his home. The asking price is generally part of the property listing and is not the final price paid by the borrower.
A resource with financial value, which can be owned in the hope of providing future benefits or income.
An assumption clause is a provision in a mortgage contract that allows the homebuyer to take over the loan from the seller. It occurs when the homebuyer is assuming an existing mortgage from the current owner rather than applying for his or her own loan
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.
“B” Mortgage Lenders
The “B” mortgage lenders or alternative lenders consist of various non-banking institutions that deal almost exclusively in mortgages. Unlike the “A lenders”, these types of lenders are not as strict when it comes to their mortgage approval guidelines. This means that clients that have bad credit or lower income than those required by the banks can still get approved for a mortgage. B-Lenders rely more heavily on the equity in the property. Alternative mortgage lenders do not deal with customer deposits.
Back-End Ratio/Back Ratio
Also known as the debt-to-income ratio, is a ratio that indicates what portion of a person’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.
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.
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.
A balloon mortgage is a loan that has an initial period of low or no monthly payments, at the end of which the borrower is required to pay off the full balance in a lump sum. The monthly payments, if any, may be interest-only and the interest rate offered is relatively low. The principal balance of a mortgage loan outstanding on maturity of the term. A balloon mortgage is one which does not fully amortize over its term to maturity.
A lump-sum payment made to a loan that is typically used to payout the remainder of the loan in full.
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 the Bank of Canada charges on loans to the charted banks. This is also the rate at which the chartered banks lend demand money to their prime customers.
Legal status for a person or entity that cannot repay their debts to their creditors. This is usually imposed by a court order that is often initiated by the debtor.
One hundredth of 1%. In other words, 1% equates to 100 basis points. Used to describe the amount of change in yield in money debt instruments, including mortgages.
The name of the FICO score from Equifax. There are thousands of slightly different credit scoring formulas used by bankers, lenders, creditors, insurers and retailers. Each score can vary somewhat in how it evaluates your credit data.
A betterment refers to 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.
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, such as rental units or more individual parcels of real property.
When you combine the mortgage rate from an existing mortgage with the mortgage rate from a new mortgage and blend them into a new rate somewhere in-between the two. You would get a blended mortgage to avoid breaking your mortgage early – to access equity and/or obtain a lower mortgage rate – and having to pay the prepayment penalty required to do so.
The method of repayment where periodical payments of principal and interest are made in such a way that the payments remain constant in amount.
An interest rate on an increased loan which is derived from a formula taking into account the interest rate on the existing loan and the interest rate required on the monies.
The allotment by a lender of funds for a number of loans for one builder.
The blue-ribbon condition is the state of a home that is so well maintained that it looks new. Another term for blue-ribbon homes is mint condition. Home buyers are attracted to these homes because they will require fewer repairs if any.
The individual who is requesting the loan and who will be responsible for paying it back.
The highest price you would be willing to pay for a property. Unless you are making a “take it or leave it” offer, you would initially offer a price lower than your bottom-line price and negotiate your way upward. Obviously, you never let a seller know your bottom-line price at the first place.
Short-term financing taken out against one property to finance the purchase of a new property.
Typically used if you are selling one property and buying another at the same time. Bridging finance offers you a short-term loan to cover the money you need to buy a new home while you are waiting for the proceeds of the sale from your old home. It’s usually charged at a higher interest rate than a standard home loan.
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.
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 purchaser.
A set of minimum regulations respecting the safety of the buildings with reference to public health, fire protection and structural sufficiency.
A building inspection is a process that ensures the property you are 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 you leverage in negotiating a better price and some contracts of sale can be signed subject to an acceptable building inspection report.
A building permit is a document of authorization issued by a local government when an individual or company wants to build a new structure or begin construction on an existing structure for expansion or repair. Moving, demolishing or converting a structure also may require a building permit.
A lump sum payment as consideration for the reduction in the interest charged on a loan from that which would normally be charged.
Buyer’s Agent (also the Selling Agent)
A buyer’s agent is 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 buyer’s market is one 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.
Canada Mortgage and Housing Corporation (CMHC)
CMHC is 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.
A cap, also referred to as an interest rate cap, is a risk management tool that provides protection against increasing interest rates while maintaining the ability to participate in favorable rate movements.
It is an agreement between a buyer and a financial institution such as a bank to receive compensation if the reference rate moves beyond an agreed level, known as the strike rate. One major type of loan that uses interest rate caps is an adjustable rate mortgage, or ARM.
The value of your long-term assets if they were to be liquidated at their current value.
A capital asset is an item that you own for investment or personal purposes, such as stocks, bonds, real estate or stamp collections. When you sell a capital asset, you earn 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 you make from the sale of an asset. The home you live in as your primary residence is excluded from capital gains tax, or CGT, when you sell it.
A capital improvement is any permanent structure or other asset added to a property that adds to its value.
A capital loss is the loss incurred when a capital asset, such as an investment or real estate, decreases in value. You’ve made a capital loss if you sell an asset for less than what you paid for it.
Capitalised interest can be best understood on an investment loan where you are making interest only repayments and you also have a line of credit to access the equity built up in your investment property. Capitalised interest uses your line of credit to pay your interest repayments so that your interest repayments are being added to the principal amount of the loan. Capitalised interest relies on you increasing the equity in your investment property through improvements and then extending your line of credit to continue repaying the interest. This can be a risky long-term strategy because if your loan grows faster than you can add equity to your property and your line of credit, then you will quickly run out of money.
The conversion of interest into a principal sum and the subsequent amortization of that sum with interest.
Capitalization Rate (Cap Rate)
The cap rate is a ratio used to estimate the return on investment of a real estate property, such as an apartment 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%.
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 mortgages that gives you cash simply for taking out the mortgage. With this type of mortgage, your lender gives you a certain amount of cash on completion (closing day). You should factor this into the total cost of your mortgage over the initial period to decide whether it’s a good deal.
A refinance transaction where borrowers bring money to the closing table to lower their mortgage balance.
An additional mortgage in which the borrower extracts home equity at the same time a refinance deal is made.
In a rental property owned by an investor, this refers to the amount of money a property generates after expenses are accounted for.
This is Latin for ‘let the buyer beware’. It means that you are responsible for doing your due diligence in examining the property before you purchase it for any issues.
A notice registered on title by a person claiming to have a proprietary interest (i.e. a right to call for or receive a transfer charge) in land or in a charge of which he is not the registered owner to protect his interest. 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 mortgage document in the Land Titles System.
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
This document details the land dimensions and identifies ownership of the property. The certificate of title also shows whether there are any mortgages or encumbrances on the property. It’s usually held by your lender as security for your loan.
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
The chain of title is 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.
The change frequency refers to 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.
Describes the fact that you are entering into a debt that uses your property as security. You are liable for the debt until you repay the loan.
A mortgage under the Land Titles Act is a charge. Like a mortgage a charge arises by contract. With a charge, however, there is no transfer of the title or possession buy the land is charged with the payment of a debt or the discharge of an obligation.
A chartered bank is a financial institution, whose primary roles are 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. Your purchase contract will detail whether real or personal chattels are included in the sale and contract price.
A mortgage given on 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.
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 person’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 on the basis of the original investment.
A mortgage that cannot be prepaid (by more than the limit set in the terms and conditions), negotiated or refinanced throughout the mortgage term, without the borrower having to pay a hefty prepayment penalty. 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 to the homebuying process in which the sale of the property takes place. A buyer signs lender agreement for his or her mortgage while the funds transfer to the seller to complete the transaction.
The miscellaneous costs associated with 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.
Closing Disclosure is 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, such as an apartment block or a series of units. If you are considering purchasing a property that is part of a cluster, be aware that there may be body corporate fees and restrictions on what changes and additions you can make to the property.
A person applying with another for a loan and are equally responsible for repaying the loan.
Collateral describes the personal property or 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 she stops making payments on the loan. The lender’s claim to the collateral used for a loan is called a lien. Lenders refer to collateral loans as secured loans because the asset secures the funding.
A readvanceable mortgage product that allows your lender to lend you more money as your property value increases, without having to refinance your mortgage. Collateral mortgages cannot be transferred to another lender – not even at the end of your mortgage term.
An asset, such as term deposit, Canada Savings Bond, or automobile, that you offer as security for a loan. May be required as additional security over your loan if you don’t have enough deposit or you’re an undesirable loan candidate. Your lender may ask for collateral security in the form of savings, other investments or properties belonging to a family member who is able to act as guarantor.
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, medical bills, cell phone bills, utility charges, library fees and video store debts 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 your credit report for 6 or 7 years from the last 180 day late payment on the original debt.
Combined Loan-to-Value Ratio
The total amount you are borrowing in mortgage debts divided by the home’s fair
market value. Someone with a $50,000 first mortgage 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.
Any property that is zoned or used solely for business purposes is a commercial property. 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
Commercial real estate is a land on which a business can be run. 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 commission is 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. The commissions paid to real estate agents tend to vary because they are negotiable.
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 in order to extend a loan approval offer for longer than the 30-60 day standard period. Quality lenders don’t usually charge these fees.
A document from a lender to a borrower that officially lays out the terms of a loan.
Common areas are elements of a property available for use for all tenants or owners.
A common-area assessment is a 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.
The areas of a property that is accessible to all residents such as gardens, hallways and driveways. Common property is maintained by using the body corporate fees, and decisions are made by the body corporate committee
Compound interest (or compounding interest) is 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.
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.
With the exception of 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.
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
Conducted by a real estate agent, this assessment of a property’s value is used to determine a reasonable offering price.
When a loan application has been approved based on the financial and credit information that an applicant has provided, and it is subject to final verification. Lender’s terms and conditions need to be met before the lender will give full approval and release the funds.
When applying for a mortgage, a homebuyer may receive notice of a conditional commitment. 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.
A condo association is 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.
These are a type of loans that are structured to best suit a borrower who is constructing their property rather than purchasing in a pre-built property. As the payment process for constructing a property is so different from purchasing a pre-built property there is often a need for a unique loan type.
Construction to Permanent Loan
A loan used to finance the construction of a home. When the home is complete, it converts into a permanent mortgage loan. Another common term for a construction to permanent loan is a single-close loan.
An agreement of two or more persons on a sufficient consideration to do or not to do a particular thing. 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.
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 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.
This is 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.
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 by means of proprietary lease or similar arrangements.
Cost Approach (To Value)
One of the steps in the property appraisal process. 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
This is the terms and conditions which are in place specifying the accepted use of a block of land or property, for example whether you are able to use it properly for just residential purposes or for commercial uses as well.
A temporary document issued by an insurance company that provides proof of insurance coverage until a final insurance policy can be issued. Many home loan applications will not be approved unless you have sufficient insurance on the property you are purchasing. As a result you can take out cover note which acts as temporary insurance while the property is under contract, and before you have secured and organised an official insurance policy.
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.
Money that is available for the sake of a loan. Credit is issued to people who want to obtain something now, but who can’t or don’t want to necessarily pay for it now, based on that person’s ability to pay for it later. Credit can be used to purchase a new property or to take out a loan, and a person’s creditworthiness is represented in different ways, including as a dollar amount called a line of credit or as a three-digit credit score.
A credit agreement is a legally binding contract made between a person 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.
A person or company of legal nature that is owed money.
Private companies that collect and maintain individuals’ credit histories, which they provide to creditors for a fee. The three major credit bureaus are Equifax, Experian and TransUnion.
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 your credit report. The term credit file is usually used to indicate the full record of your credit history maintained by a credit bureau. Your credit report may not include all the information in your credit file.
A record of a consumer’s ability to repay debts and demonstrated responsibility in repaying debts. This information is all contained on a consumer’s credit report. Your credit history includes all credit card applications you have made, any personal loans you have in your name as well as details of your repayment history with regards to your bills and other debts. Your credit history will be assessed by a lender to determine how likely you are to responsibly repay your home loan, however even if you have defaults or a lot of credit card that it is still possible to secure a home loan.
The maximum amount a borrower can use at any one time, typically applies to equity or line of credit loans.
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.
An agreement where a person becomes legally responsible for paying back borrowed money.
It is the 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.
Produced by credit reporting agencies, this reveals the borrower’s credit history and current status of obligations. The individual records of consumer financial behavior kept by credit bureaus and provided to businesses when they want to evaluate potential borrowers. Credit reports include records on: consumer name, current and former addresses, employment, credit and loan histories, inquiries, collection records, and public records such as bankruptcy filings and tax liens.
Credit risk is a measure of the creditworthiness of a borrower. In calculating credit risk, lenders are gauging the likelihood they will recover all of their principal and interest when making a loan. Borrowers considered to be a low credit risk are charged lower interest rates. Lenders, investors, and other counterparties consult rating agencies to asses the credit risk of doing business with companies.
A numerical evaluation of your credit history used by businesses to quickly understand how risky a borrower you are. Credit scores are calculated using complex mathematical formulas that look at your most current payment history, debts, credit history, inquiries and other factors from your credit report. Credit scores usually range from 300-850, the higher the score, the better. There are thousands of slightly different credit scoring formulas used by bankers, lenders, creditors, insurers and retailers. Each score can vary somewhat in how it evaluates your credit data.
A system that assesses a borrower on a number of items, assigning points that are used to determine the borrower’s credit worthiness.
A credit union is 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.
Credit utilization refers to the amount of credit you have used compared with how much credit you have been extended by a lender. It also refers to a ratio that lenders use to determine your creditworthiness and is a factor that is used to determine your credit score.
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).
It means interest amounts accrued daily on the account balance. Lenders will typically calculate the interest charges on your loan account daily regardless of whether you make your repayments weekly, fortnightly or monthly. 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 person or company that owes money to a creditor.
Debt consolidation is a means of combining several debts into one debt that has one monthly payment.
The goal of debt consolidation is to lower the monthly payment and/or the interest rate of your total debt. If you have several high interest credit card debts and other loans outstanding, you may combine these debts into a second mortgage or home equity loan, making one payment to the second mortgage holder or lender.
Debt To Available Credit
Also called your credit utilization ratio, refers to how much of your available credit you’re using. The more you’re using and the less you have available, the higher this percentage is. Lenders consider this among the many factors when deciding to offer credit and how much. The higher your debt to available credit ratio, the more riskier you appear to potential lenders.
Debt to Income Ratio
The debt-to-income ratio refers to how much of a borrower’s monthly income is eaten up by debt. Creditors, especially mortgage lenders, want to know what’s left over after all monthly bills are paid.
The ratio is calculated by dividing monthly debt payments by gross monthly income. It’s a key barometer for lending someone money.
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 Service Ratio (DBS)
Two calculations lenders use to determine how much you can afford to borrow to purchase a home. Your gross debt service ratio (GDS) takes your monthly carrying costs into consideration and your total debt service ratio (TDS) includes all of your current debt commitments.
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 Agreement
If you are a homeowner and behind on your payments, you may enter into a deed in lieu of foreclosure agreement with your lender. This transaction relinquishes all homeownership rights to the mortgage lender. In many cases, the lender will forgive the outstanding debt.
Deed of Reconveyance
When a borrower has paid in full on a mortgage, the lender then awards the borrower a deed of reconveyance. This document becomes also a part of public records. Also known as reconveyance deed and recon.
If you do not pay your minimum home loan repayment by the due date then you will be in default. If you do not make loan repayments and remain in default your lender may take legal action to repossess the property. Defaults can also be listed against your name for failure to pay bills such as a phone or electricity bill. These then show up on your credit history and can impair your credit when it comes time to apply for a loan.
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. There are other options to resolve the borrower’s delinquency, including modifying the loan to make it easier to keep up with payments.
It is commonly used to describe a situation in which a borrower misses their due date for a single scheduled payment for a form of financing. If you do not make your mortgage repayments on time then you become at risk of defaulting on your loan due to delinquency which can eventually lead to a notice of default, and later a Power of Sale or Foreclosure.
A loan where the balance must be repaid upon request.
The measure of loss in value of a home or property Over time many assets will lose value as they become older, outdated and less useful, and this is known as depreciation. When it comes to the value of long-term tangible assets a periodic cost can be assigned to calculate the cost of depreciation to you. Depreciation could be driven by poor economic factors or property damage.
Derogatory is how lenders describe negative marks in someone’s credit history. Derogatory information can hurt someone’s credit score and prevent her from taking out a loan. It can also stay on a credit report for as long as 10 years.
It is a financial transaction in which one person withdraws funds from another person’s bank account. If you choose to make your payments by direct debit you will need to be very sure that there will always be enough funds available on the day the direct debit comes out so that your account does not become overdrawn.
A discount brokerage is 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. As a result, discount brokerages charge lower fees.
A measure of interest; 1 point = 1% of the home loan value. Homebuyers may pay points up front, a type of buy-down, in order to lower their overall interest rate and mortgage payment.
This is the name given to fees that are often incurred during the conveyancing process of purchasing a new house. These can often include title search fees and costs paid to government authorities and these are often unavoidable and may be included in the fee you are paying your conveyancer.
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 you filed for bankruptcy personally.
If you finalize your loan account and pay the amount in full before the end of the agreed term you may be charged discharge fees which are administration fees to cover the costs incurred by the lender to process your loan.
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.
The sale of a mortgage for less than the principal balance thereby affecting an increase in the percentage of interest paid on the investment.
A discount brokerage is 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. As a result, discount brokerages charge lower fees.
This is the amount you have left over from your wages and other income once all of your bills and expenses have been paid. It does not include any lifestyle or entertainment expenses but is the amount your lender will look at to determine how much you have remaining from your total income each month to service a loan.
A distressed property is any property that is under foreclosure or being sold by the lender. Normally, a distressed property is a result of a homeowner who was unable to keep up with the mortgage payments and/or tax bill on the property. It is common for a distressed property to be sold below market value.
The deposit plus any other money you’ve set aside to pay towards the purchase price of the property.
If you’re building a home, there are usually five stages of construction from pouring a slab to the stage where the house can be locked-up. A draw down is a payment required by your builder at each of these stages. With a construction loan, you can make these payments and only pay 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.
Dual agency occurs when the same real estate agent represents both the seller and the buyer. In most cases, it’s 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 aren’t aligned.
Some buyers feel that a dual agent will be more motivated to write an offer on his own listing since he’ll get double the commission from both sides of the deal. This is a possibility, but buyers and sellers should be sure to understand all potential conflicts of interest before entering into a dual agency relationship.
A due-on-sale clause is 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
If you still have an outstanding balance on your mortgage at the end of your term, you have to renew for another term. Most lenders allow you to renew and stay with them anytime in the final 120 days of your current mortgage term; this is known as an early mortgage renewal.
Early Termination (or Repayment) Fees
Also known as early exit fees or deferred establishment fees, early termination fees are charged if you pay out your loan early within a designated time period specified by your lender.
A sum of money usually 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 given to someone to use a piece of land for a specific use even if they aren’t the owner of it, e.g a driveway shared between the landowner and a neighbour.
This is 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)
It is a transaction that takes place over a computerized network when funds are transferred electronically from one account to another.
An emergency fund is an easily accessible saving account intended to help pay for unexpected expenses.
It can be anything which is a liability or charge on a property and can include an easement that runs through the property, or a charge stating you may choose to repaint your boundary fence from an approved colour list.
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. You build up equity in a home as you pay down your mortgage and as the property value increases. 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
An equity take out mortgage is a mortgage loan used to “take out” equity for other purposes. It may be used for repairs or renovations of the property, to use as a down payment for a vacation property, for investment in another area, or many other purposes. 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.
Escrow is 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 you refinance a mortgage for example, your loan application, title and paperwork may have to go through an escrow agent until your 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.”
After an offer is made, an escrow officer (or a representative of an attorney’s office) facilitates the transaction from the time the contract is signed through the close of escrow. These include inspections, earnest money agreements, disclosures, lender issues, and title and escrow issues. This is different from an escrow coordinator attached to a real estate broker’s office — a person whose services you should not pay for.
All of your possessions, property and debts which will be left behind when you die.
An estoppel certificate is 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 allotments
- 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
When you legally exchange contracts with the vendor you are purchasing from to allow formal inquiries to begin towards the settlement of the sale. This is where you present any conditions to the contract such as signing it subject to finance being approved or subject to satisfactory building inspection reports.
Exclusive Agency Listing
An Exclusive Agency Listing is 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.
Fair Market Value
Fair market value (FMV) is defined as the price a ready, willing and able buyer, with knowledge of all pertinent facts, is willing to pay for a certain piece of property. Fair market value is the amount you may expect to receive from a sale of your real estate, or the price you may expect to pay when purchasing a certain property.
Fee simple is a term that refers to real estate or land ownership. The owner of the property has full and irrevocable ownership of the land and any buildings on that land. He is free to do whatever he wishes on the land subject to local zoning ordinances. Fee simple and fee simple absolute are the same thing. Fee simple is the highest form of property ownership.
Created by the Fair Isaac and Co., this mathematical scoring system is the major credit scoring model used to assess the relative risk of an individual borrower.
Fiduciary refers to 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.
A fee or commission paid by a lender or borrower to a broker for respectively, referring or obtaining a mortgage loan.
A first mortgage is 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 $750 rebate for qualifying first-time homebuyers in Canada. To receive your $750 rebate, you must claim it with your personal 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, car payments, etc.
Fixed Interest Rate
When the interest rate charged on your home loan is locked in for a certain period of time. Your rate will not change during the fixed interest rate term of your choosing which is often between one year and 10 years.
Fixed-Rate Closed Mortgage
The security of a fixed interest rate, so you always know exactly what your payments will be.
Fixed-Rate Open Mortgage
The security of a fixed interest rate and the flexibility to pay off as much of your mortgage as you want, when you want.
Flat Interest Rate
A flat interest rate is 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.
Allowing the rate and points to vary with changes in market conditions. The borrower may elect to lock the rate and points at any time but must do so a few days before the closing. Allowing the rate to float exposes the borrower to market risk, and also to the risk of being taken advantage of by the loan provider.
A rate lock, plus an option to reduce the rate if market interest rates decline during the lock period. Also called a cap. A float-down costs the borrower more than a lock because it is more costly to the lender. Float-downs vary widely in terms of how often the borrower can exercise (usually only once), and exactly when the borrower can exercise.
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.
It is a type of property insurance that covers a dwelling for losses sustained by water damage specifically due to flooding caused by heavy or prolonged rain, melting snow, coastal storm surges, blocked storm drainage systems, or levee dam failure. If a property you are purchasing is located in a floodplain your lender will require you to show proof of flood insurance before they will approve your loan.
Forbearance is an agreement between a lender and a borrower to temporarily suspend debt payments. For mortgages, lenders may opt to foreclose on borrowers who are unable to make payments. To avoid a costly foreclosure, the lender and the borrower can negotiate a forbearance agreement to allow the borrower to catch up on payments. For student loans, forbearance postpones payments under certain hardship conditions; however, interest continues to accrue on the principal balance.
The legal process by which a lender enforces payment of a debt secured by a mortgage, or deed of trust. During a foreclosure, the lender takes possession of the home, evicts the mortgagor, and sells the mortgaged property. If the sales price is not enough to pay off the loan, the lender may have other remedies dependent upon state laws, which vary from state to state.
This is the approval given once the lender has made all the necessary checks and review of your application. Once you receive formal approval of your loan you are able to proceed with settlement.
If you suspect that you are a victim of identity theft, you may contact the credit bureaus to request that a 90-day fraud alert is placed on your credit reports. If you have been a victim of identity theft you only need to contact one bureau to have a temporary 90 day alert added to all three of your credit reports. This 90-day alert notifies potential creditors that your identity may have been stolen and suggests that they take extra steps to confirm your identity before opening a new account. If it turns out that your identity has been stolen, you 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.
Freehold is a type of title. If you have freehold title over land, you own it outright forever. You’re also free to enjoy the property as you see fit within local and government guidelines. Freehold gives you complete control and ownership for as long as you like, until you choose to sell. While your land or property is mortgaged it is of course partially owned by your lender, and you want to make sure that if you are choosing a 30 year loan term for example, that at the end of that term you will have freehold over the property with no obligations remaining.
A freestanding property is one which stands independently of others.
The Financial Services Commission of Ontario (FSCO) is a regulatory agency of the Ministry of Finance that regulated 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 until June 7, 2019.
FSCO’s legislative mandate is to provide regulatory services that protect the public interest and enhance public confidence in the sectors it regulates.
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
The current index value plus the margin on an ARM. 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.
Full Doc Loan
This is the standard loan type when talking about home loans and requires a lot more documentation when applying than a low doc loan.
It is 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.
A letter required by the borrower when using gift funds to obtain a mortgage loan.
In the case where the mortgage applicants cannot come up with the full downpayment for a mortgage from their own resources, they are able to receive a gift 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.
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.
The income amount due to a person or company before tax and superannuation has been deducted. Even though your gross annual income is not your take-home wage, lenders will still generally assess your borrowing capacity by asking for your gross annual income.
A lease that provides that all expenses attributable to the real estate are paid by the landlord. Local terminology may require some expense to be paid by the tenant.
Gross Leasable Area
The total floor area designed for tenant occupancy and exclusive use and is that area on which tenants pay rent. As adopted by the shopping centre industry it is measured from the centre line of joint partitions and from outside wall faces
Gross Rental Yield
The gross rental yield on your property is used to compare the investment return. To calculate your gross rental yield you divide the rental income you receive in a year by the purchase price you paid for the property. For example, if the yearly rent on your investment property is $18,200 and the median house price for the area is $509,250 then your gross rental yield will be 3.57%.
This is a term used when referring to all the fees and charges that you will pay to the government when purchasing a property, they include property land transfer tax and others.
The period after the payment due date during which the borrower can pay without being hit for late fees. 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.
Gross income — 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.
Gross rent is the amount of rent stipulated in a lease. When someone signs a lease, she’ll have to pay rent each month, and the gross rent is the combined amount of monthly payments. Gross rent will appear higher than the net effective rent because the landlord may be offering a deal like one month free that results in the gross rent being spread across fewer months.
A formal and legal promise of fulfilling certain terms and conditions such as being a guarantor on a home loan.
Someone who agrees to be responsible for your mortgage debt if you default. If you do not have the required deposit amount, you have a poor credit history, or you want to avoid paying lenders mortgage insurance (LMI) you may need a family member to act as your guarantor to secure your home loan. Keep in mind you are asking them to put their own home and financial security at risk for you, so make sure you have official payment agreements in place.
A guaranteed mortgage is a home loan guaranteed by a third party, often a government agency that will buy the debt from the lender and take responsibility for the loan if the borrower defaults. The value of the home secures the mortgage. If the borrower defaults, the lender can file a claim against the guarantor.
A hard inquiry, 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 credit, such as a car loan or credit card. 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 your credit report for 2 years but are only included in your credit score for the first 12 months.
Hard Money Loan
A mortgage of last resort for borrowers who can’t obtain financing in the standard market due to poor credit.
Harmonized Sales Tax (HST)
The harmonized sales tax (HST) is 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. Buyers of new homes may receive a rebate of up to the certain limit of the provincial portion (8%) of the HST.
A home equity line of credit (HELOC) is a loan that leverages the equity in your home. The HELOC functions like a revolving line of credit where you can choose when and how much money to withdraw, so long as the amount does not exceed more than 65% of the value of your home.
The interest charged on a home equity loan is often higher than a standard variable rate, and the loan requires significant discipline not to overspend because while you do not need to make repayments until you have reached your credit limit, you do not want to be controlled by large mortgage debt.
High Ratio Mortgage
A high ratio mortgage is 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 high yield mortgage is 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, 1) pending achievement of a performance requirement, or as 2) protection against liens.
A holding deposit is an amount you pay to a vendor to show them and other buyers that you’re seriously interested in a property. A holding deposit does not secure the property for you, but is given in good faith for the vendor to start organising the sale.
A holding period is 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
The Canadian government’s Home Buyers’ Plan (HBP) allows you to borrow up to $25,000 from your RRSP, tax-free, to help you purchase a home. Note that this is considered a loan and you must repay it within 15 years.
This is the difference between the value of your home and the amount you still owe on your mortgage, and any other outstanding debts over the property. The amount of equity in your home changes as you make repayments to reduce your mortgage or as the value of your property fluctuates. As your property appreciates in value your equity increases, but if your property depreciates in value, you could be at risk of negative equity, where you owe more than your property is worth. To avoid this situation, most lenders will ask for a home loan deposit so you can avoid borrowing more than your property is worth, and if you refinance to access your equity you can usually only access 80% of the equity in your home, or 55% with a reverse mortgage if you are retired.
This is an examination of a property to determine if it is structurally and mechanically safe. A home inspection can make you aware of any repairs which will be required on the home and this can give you leverage to negotiate a lower purchase price or inform you of expensive home maintenance ahead.
A home loan is 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 Contents Insurance
An insurance policy that protects you against the loss or damage of both your home and all of your possessions, fixtures and fittings. Home and contents insurance should also protect you against claims of negligence or injury, protecting your liability if someone decides to sue you.
Home Price Index
A financial and market tool that provides historical data on residential home prices in various regions.
A home warranty is a service contract that for a set period covers the cost of maintaining household systems or appliances. If you recently bought a home, chances are you were offered a home warranty. The company offering the home warranty promises to repair or replace specific components of your home 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. In order 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
The percentage of your monthly pre-tax income that goes toward your house payment. The general rule is that this ratio shouldn’t exceed 28% in USA or 32% in Canada. This is also known as the “front ratio.”
Household income is the total amount of money earned by every member of a single household. Sources of household income include wages, salaries, investment returns, retirement accounts, and welfare payments. Banks use household income to help determine how much to lend to a customer, and it is also used to gauge a nation’s overall standard of living.
HST (On new Home Purchase)
If you buy or build a brand-new home, you will have to pay GST or HST on the purchase price, depending on which province you live in.
Hypothecation is 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, it 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 your behalf.
Impounds, 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.
Income Approach (To Value)
One of the steps 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.
Real 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 statement showing your income and your expenditure for a designated period, showing your lender the proportions of your income, which go to savings, bills and other debts, and how much disposable income is left to service a loan.
Taxes levied on the earnings of companies and individuals are referred to as income taxes. Earnings subject to income taxes can come from diverse sources, including wages, salaries, dividends, interest, royalties, rents, gambling winnings, and product sales.
It is 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.
Indemnity insurance is 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. Lenders use an index to determine when and how to adjust their variable interest rates. The index takes into account their own financial position, their cost of lending, and inflation, the official cash rate and Reserve Bank decisions.
These are the interest rates some lenders use to work out their advertised or interest rates for loans.
Inflation is 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.
A record on your credit report that shows every time you, one of your creditors, or a potential creditor requests a copy of your credit report data. (See Soft Inquiry and Hard Inquiry).
An inspection report is 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.
An installment loan is 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.
Insurance is a policy paid for by an individual, a business, or another entity intended to protect the insured against financial loss. 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.
A loan where all or part of the principal and interest and permitted costs are insured against loss by CMHC under the NHA or by a private mortgage insurance company.
This is the amount your lender is charging you to let you borrow their money or paying you for keeping your money in their savings account.
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 US, 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.
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
It is an investment loan, typically interest only, that the borrower pays their interest in advance in order to possibly save on tax.
Interest in Arrears
This is interest charged at the end of a specified time.
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 amount of interest, expressed in dollars, computed by multiplying the loan balance at the end of the preceding period times the annual interest rate divided by the interest accrual period. It is the same as interest payment except when the scheduled mortgage payment is less than the interest due, in which case the difference is added to the balance and constitutes negative amortization.
The decimal equivalent to an interest rate on a unit amount for a period of time. Computed by interest rate divided by 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. This type of mortgage requires a borrower to pay back interest only for a set number of years. After the interest-only period has expired, the remaining principal is typically amortized over the remainder of the life of the loan.
Usually a loan requires you to pay both the principal (the amount you’ve borrowed) and the interest charged on that amount. An interest-only loan requires you to pay only the interest portion of your repayments. 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, if you were considering a mortgage loan for $200,000 with a 6 percent interest rate, your annual interest expense would amount to $12,000, or a monthly payment of $1,000.
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. It is usually 1 or 2 percentage points, but may be 5 points if the initial rate period is 5 years or longer.
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.
Interim financing is 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
It is a metric used in capital budgeting to estimate the profitability of potential investments. This is calculated to help determine the return on investment you 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 you can see the point at which your investment turns a profit.
Introductory APR Period
An introductory APR period is 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 you save money on interest charges if you can’t pay your credit card in full when the bill is due, especially if you are making a large purchase or completing a balance transfer.
Also known as an ‘introductory rate’, this is a lower initial interest rate offered on a home loan for a period between one month and five years, depending on the lender. You could save as much as 2% on your interest rate if you take advantage of a honeymoon offer which may include a fixed lower interest rate, a discounted variable rate or a capped rate. At the end of the period your home loan interest rate will revert to the lender’s standard rate for your 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.
Investment income is 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.
An investment return is derived from a very similar calculation to the capital growth figure and is the percentage of change in the value of your investment over a period of time. This can help you determine whether your investment property is increasing in value, how much it is increasing and allow you to calculate whether 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.
Joint liability is 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 cosigners.
A type of property ownership in which two people share equally in a home and/or property.
This is a common for spouses.
Joint and Several Liability
This is 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.
When two or more people have an equal holding in a property. In the event of one person’s death, the ownership of the property passes onto their surviving partners. This relates to actual property ownership, and not your status as someone tenanting a rental property.
An association 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.
Foreclosure is 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 judgment is 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 your credit report for 6 years and harm your credit score significantly.
A mortgage that is subsequent to the claims of the holder of a prior (senior) mortgage.
A plan showing the boundaries of a property and where buildings are positioned within those boundaries. A survey report is often obtained by your conveyancer during the settlement period to ensure the property you intend to purchase is within its boundaries.
Land Transfer Tax
When you buy land or an interest in land in Ontario, you pay Ontario’s land transfer tax. Land includes, but is not limited to, any buildings, buildings to be constructed, and fixtures (such as light fixtures, built-in appliances and cabinetry).
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.
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 is payable on the closing date when the Transfer is registered.
Land Transfer Tax Rebate
To help offset the cost of land transfer tax, Ontario, British Columbia, Prince Edward Island and the City of Toronto offer land transfer tax rebates to first-time homebuyers
An additional charge a borrower is required to pay as penalty for failure to pay a regular installment 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.
A latent defect, also referred to 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 mortgage web site designed to provide leads (potential customers) to lenders. Where a referral site provides information about lenders to consumers, with consumers contacting the lenders, a lead-generation site provides information about the consumers to the lenders, and the lenders contact the consumers.
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 transaction in which a hopeful home buyer leases a home with an option to buy it within a
An estate or interest in an estate in real property held by virtue of a lease for a term of years. A leasehold is considered personal property.
A mortgage given by a lessee on the security of his leasehold interests in the land.
A legal description is 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.
These are charged to you throughout the sale or loan application process by your lawyer or your lender. The fee can cover the lender’s legal costs in having your loan contracts drawn up, as well as the time your own solicitor spends reviewing your property sale or purchase contracts.
An entity (the financial institution or individual) that lends you money to purchase a home.
Fees associated with closing costs, sometimes called processing fees; designed to cover costs incurred by lenders during the loan process.
Lenders Mortgage Insurance (LMI)
Lenders mortgage insurance protects your lender in the event you default on your home loan repayments, they sell your home and the sale price doesn’t cover the remaining loan amount. If your lender requires LMI you must pay for it, but you can often avoid paying it if you have a loan to value ratio of less than 80%. Non-conforming loans such as low doc loans may require you to provide more than a 20% deposit to avoid paying LMI. LMI is calculated as a percentage of your loan amount and is usually payable before loan approval.
The property value for mortgage purposes. Usually the lesser of appraised value or sale price.
A lessee is a person that leases a property.
A lessor is the owner of a property that is leased or a person who grants a lease.
Letter of Intent
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.
Liability is what a person or organization owes money on. The liabilities include your debts and obligations. Your debts include your mortgage, personal loans, student loans or credit card debts, and your obligations are your outgoing expenses and bills.
A lien is a legal claim over a property to hold it as security against a debt or loan. You may put your own property up as security to access the equity in your home, or a family member may provide their property as security against your debt as a guarantor.
A claim by one person or entity on the property of another. Commonly, this is security for money owed, created by the lender when you buy a property. Liens also include obligations not met or satisfied, judgments, unpaid taxes, materials, or labor.
Life-Sycle Cost Analysis
Life-cycle cost analysis is a method of calculating a building’s expected operating and maintenance costs over its lifespan.
A limited title is a title where the boundaries of the property are not certain. This will usually be solved when a survey is conducted.
Line of Credit
A very flexible loan arrangement which gives you the ability to draw down on an agreed amount of equity through your loan account. You are not required to pay off your line of credit until you have reached the limit of available credit.
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 agent who represents the interests of the seller.
A loan is defined as a borrowed amount of money that is repaid in full as well as with a certain amount of interest.
The contract or document that is provided for you to sign in order to receive the funds from a lender in order to purchase a property.
The amount the borrower promises to repay, as set forth in the mortgage contract. It differs from the amount of cash disbursed by the lender by the number of points and other upfront costs included in the loan.
Loan consolidation enables a student to consolidate multiple student loans into a single loan. By consolidating your student loans, you only have to make one payment every month. You also can extend the repayment term.
When you purposely provide false or misleading information on your loan application to help you qualify for a larger loan amount than you would normally be eligible for. Loan fraud can result in civil liabilities or criminal penalties.
Loan origination is 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
A fee charged by a lender for underwriting a loan. The fee often is expressed in “points;” a point is 1% of the loan amount.
A loan officer is an employee of a lending institution that functions as the liaison between that lender and its customers that are applying for a loan.
A loan pre-approval is when you have the funds you need to purchase a property approved before you’ve found a property. This allows you to clarify your budget and borrowing capacity and bid freely at auction or put in an offer on a private sale. Pre-approval is often provided in writing and can be valid for three to six months.
Loan Processing Fee
A fee charged by a lender for accepting a loan application and gathering the supporting paperwork.
Loan to Value Ratio (LVR or LTV)
The ratio of the amount you have borrowed to the value of the security, where the security is usually the property you have borrowed to buy. To calculate your LVR divide the loan amount by the property’s valuation amount, then multiply your answer by 100. LVR is expressed as a percentage. Borrowing greater than 80% LVR will often require you to pay lenders mortgage insurance.
A ratio that expresses the amount of a first mortgage lien as a percentage of a property’s total appraised value. 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%.
It allows you to lock in an interest rate which is current at the time of your application, so you can be guaranteed that same rate at the time your loan settles. Since interest rates can fluctuate so often and quite significantly, the interest rate quoted in your application could be different to that offered by the lender at loan settlement weeks later, this can be a useful feature.
Lock periods are set amounts of time during which the interest rates buyers have been promised cannot be made any higher.
Locked In Rate
It is referred to as a rate lock, is 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.
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, but you are able to self-certify your income. Low doc loans and non-conforming loans often require that you have mortgage insurance.
Secured loans that require a small down payment, usually less than 10%. Often, low-down mortgages are offered to special kinds of borrowers such as first-time buyers, police officers, veterans, etc. These kinds of loans sometimes require that private mortgage insurance (PMI) is purchased by the borrower.
Lump Sum Repayment
An additional repayment you make above the minimum repayment amount required. These can be made whenever you have spare cash and can often be any amount, although some lenders will require a minimum amount for a lump sum repayment, and others will charge you 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 borrower’s existing assets such as cash or shares, to make a new investment.
Market Approach (To Value)
One of the steps 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.
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.
Market conditions are 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.
The maturity date refers to 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 a lender is willing to give you to purchase a home, as outlined during the mortgage pre-approval process.
Maximum Loan Amount
The total amount that an applicant is authorized to borrow. Based on your income, expenses, deposit, property price and status – whether you are a couple or have children – your lender will calculate the maximum amount you are eligible to borrow.
Maximum Loan to Value Ratio
This is the maximum amount you’ll be able to borrow, usually expressed as a percentage.
The maximum amount of time you have been given to repay your 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 mean price of a property market is the actual average value and is calculated on the total of the list of sales, divided by the number of sales on that list. The mean house price can often be significantly skewed by a sale which was exceptionally high or low and so does not always depict a typical house price.
You will often hear house prices in certain areas referenced by the median value of the area and this is different to the average price of house sales because averages can be affected by adverse view properties which were sold for significantly high were significantly low prices, where the median value is the middle price in a series of sales half of which are of a lower value and half are of a higher value. 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.
Mortgage Finance Company is 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 is an investment and lending company designed specifically for mortgage lending (primarily residential 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
This is the minimum amount which can be borrowed at a fixed interest rate, and each lender and each type of loan will have a differing amount.
Minimum Loan Amount
The minimum amount that can be borrowed. This is determined by the lender and the type of loan.
Minimum Redraw Amount
When you make additional loan repayments you can access these using the redraw facility, but you may be required to make a redraw of a minimum amount set by your lender.
The monthly amount you have agreed to pay in your loan contract to repay your loan within the term.
The minimum amount that a credit card company requires you to pay toward your debt each month.
Mixed-income housing is an alternative to traditional subsidized-housing initiatives for low-income Americans. 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.
Monetary Policy Report
A quarterly report that presents the Bank of Canada’s projection for inflation, any growth in the Canadian economy, and its current risk assessment of household debt levels.
Monoline Mortgage Lenders
Monoline lenders are lending banks that focus on providing loans such as mortgages. They do not offer checking or savings accounts or other related services. Such lenders, therefore, exist for one purpose and will not attempt to upsell a client to another, often more profitable, product or service.
Monthly Mortgage Payment
When your mortgage payment is withdrawn from your bank account on the same day of each month (i.e. on the 1st), so you make 12 payments per year.
A lien or claim against real property given by the buyer to the lender as security for money borrowed.
Mortgage Amortization is the process of repaying a mortgage loan, usually using a consistent monthly payment.
The document you submit 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.
It a process of approving your mortgage application. A mortgage approval comes after you’ve submitted an Offer to Purchase, the seller has accepted, and you want to secure financing to purchase the home. At this stage, you submit your completed mortgage application and wait to find out if it is been approved.
The creditor or lender who is providing the funds in a mortgage agreement.
The borrower in a mortgage agreement.
A fixed-income security which derives its cashflow from payments on a pool of underlying residential or commercial mortgages.
A mortgage balance is the full amount owed 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 home. The mortgage balance is deducted from the market value of the home to determine the equity.
A person or company that obtains loans for borrowers from a number of lenders. A mortgage broker receives a trailing commission which is a portion of the interest you pay on your loan, over the life of your loan in return for referring you to your lender.
A mortgage brokerage is a legal identity licensed to trade in mortgages. Mortgage Brokers and Licensed Mortgage Associates must be licensed under a brokerage.
A mortgage company is 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 mortgage deed is a document in which the mortgagor transfers an interest in real estate to a mortgagee for the purpose of providing a mortgage loan.
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. Lenders and brokers may try to tack on extra costs, so look closely at application and processing fees. When working with a mortgage broker, ask how they calculate a yield spread premium (YSP). Each lender and broker will have their own 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.
Mortgage Interest Expense
A tax term for the interest paid on a loan that is fully deductible, up to certain limits, when you itemize income taxes.
It is 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. 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.
A mortgage holder is 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
Mortgage life insurance is a policy designed to protect heirs if the borrower dies or diagnosed with an eligible life-threatening condition to pay out your loan or make repayments depending on the cover while owing mortgage payments. 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, and your loan repayments may be able to be covered under your complete life insurance policy, which will also cover your other bills and living expenses.
Mortgage Loan Officer
A representative of a lending institution that acts as an intermediary between the institution and the borrower.
Mortgage Loan Originator
It is an individual who works with a borrower to complete a home transaction. The mortgage loan originator/officer is usually the borrower’s main point of contact throughout the entire home loan process.
A mortgage manager can arrange finance for you to purchase your home, but unlike banks, building societies or credit unions, mortgage managers do not source the funds from their base of customer deposits, but instead through securitisation.
A mortgage originator is 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.
Mortgage qualification is 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. If they move shortly after buying the property, then they will likely lose money buying points.
The aggregate of mortgage loans held by an investor.
An evaluation of your credit score, down payment amount and debt service ratios, used to determine your maximum affordability. A mortgage broker or lender can then show you the maximum purchase price you can consider, as well as the mortgage rate and payment that would go along with it. When you get pre-approved, you can also get a rate hold, which guarantees the lowest rate for a specific period of time.
Advice on where to go to get a mortgage.
A mortgage renewal is a new agreement to extend or renew mortgage terms with your mortgage holder. At the end of your current mortgage term, if you still have a balance on your mortgage, you will need to renew it for another term. It’s important to shop around for the best mortgage rate and product before your maturity date, otherwise your lender may automatically renew your mortgage for another term.
The process of paying off and replacing an old loan with a new mortgage. Borrowers usually choose to refinance a mortgage to get a lower interest rate, lower their monthly payments, avoid a balloon payment or to take cash out of their equity.
It is 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 the State Government to register your mortgage. Part of the loan application process, and therefore payable before the settlement of your loan.
Deceptive and exploitative schemes by lenders, brokers, home sellers and sometimes even borrowers.
The task carried out either by the lender or another party, of collecting mortgage payments falling due and managing other mortgage administrative duties.
Trying to find the best deal on a mortgage.
Offers for great mortgage deals that appear unbidden in your email.
A mortgage statement is a document prepared by a mortgage holder and provided to the borrower.
A mortgage statement will show the current mortgage balance, current interest rate, amount remaining on the mortgage term and amortization and the contact information for the mortgage holder.
A 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.
This is 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 you commit to one mortgage rate, lender, and associated mortgage terms and conditions. The term you choose will have a direct effect on your mortgage rate, with short terms historically proven to come with lower rates than long terms.
Mortgage Title Insurance
Mortgage title insurance 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. Despite a thorough search, it isn’t hard to miss important pieces of evidence when information is not centralized.
A mortgagor is a person 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 multi-family building or home 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.
Negative equity occurs when the value of an asset is less than the amount owed on a loan to buy it.
Net Effective Rent
Net effective rent is 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,
It represents an individual’s total earnings or pre-tax earnings after factoring deductions and taxes in gross income. To calculate your net income, deduct all expenses which come out of your gross income before it arrives in your bank account. This includes tax, superannuation contributions, and any mandatory health insurance premiums which come out of your gross income. The remainder is your take home pay, or net income, before depreciation or distribution of earnings – that is, before you have paid any of your own bills. Often when you are considered for a loan, your gross income is used, however this amount can be significantly higher than the income you actually net, and can use to service your loan.
A lease which 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.
Net proceeds refer to 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 you may know your mortgage balance, the remaining costs can vary and depend on your 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. Your agent can help you determine whether your net proceeds on the sale of your home will be sufficient to avoid a short sale.
Net worth is a measure of wealth. Net worth is the sum of all assets owned by a person or a company, minus any obligations or liabilities.
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
This is a type of home loan that does not require any upfront deposit on the property purchase. Typically, you do 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
When a person 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 for inflation. A quoted rate of 6% on a mortgage, for example, is nominal.
A nonrecourse loan, 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 non-conforming loan is 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.
Non-Resident Speculation Tax (NRST)
The NRST is a 15 per cent tax which 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 which are registered on title and that are not registered on title.
Notice of Assessment
This is also known as an NOA. It is the summary form that Revenue Canada sends you after your income tax has been filed. It specifies what you claimed on your taxes last year, as well as the amount of taxes you owe, or the amount of money that you will be received as a tax refund.
Notice of Default
A notice of default is 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 potential buyer indicating their intention to purchase a property will put forth an offer on the property, usually in writing, for the consideration of the vendor.
Offset Account/Mortgage Offset Account
A savings account held by the same institution which issued your loan, where the interest you earn in your savings account offsets the interest you pay on your mortgage. Where you would ordinarily be taxed on the interest earned from a traditional deposit account, a mortgage offset account allows you to offset your tax bill against interest savings made. Some offset accounts will offset at the same rate of interest as your mortgage these are known as 100% offset accounts, where others may be slightly less.
Off the Plan
This is when you purchase a property that has not yet been built but it is part of a construction process and you have seen and agreed to the plan of the property. This most typically applies to new apartment complexes that the apartments are purchased before or during the construction stage.
Fees charged by your home loan lender to cover the internal costs of maintaining your loan which are typically charged monthly or yearly. Some basic or standard home loans do not charge ongoing fees.
This is 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.
An open house is when a seller opens his home so that potential buyers can view it without an appointment. Buyers can 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.
An open listing is 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.
An open-end lease is 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 to Buy
This is a legally binding contract that can give you the first right of refusal on a property.
This is the process that involves the preparation of your loan, including submitting and evaluating your loan application, running a credit check, verifying your employment details, and completing a valuation of the property.
This can also be called the application fee and covers your 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 you overcapitalise, you will be spending more money on your home than you will get when you sell the home.
The overnight rate is the interest rate at which large banks borrow money, short term, among themselves.
A limit determined by your lender which you are able to exceed your account balance by. Your overdraft is often charged interest and must be repaid but there is no set monthly repayment amount.
Overdraft protection is a service provided by a bank that protects against nonsufficient funds, or NSF. If you spend more than what is in your checking account, overdraft protection covers the purchase. Banks charge a fee for this 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.
Paydown is 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.
A Pay Stub is 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
Per diem interest is the amount of interest charged on a daily basis for a just-closed mortgage. Because not everyone receives the money for a mortgage on precisely the 1st of the month, borrowers have to pay per diem interest for the days between closing the mortgage and the beginning of the next month when regular payments begin.
The periodic rate is the interest rate charged over a certain number of time periods. The periodic rate equals the annual interest rate divided by the number of periods. For most credit cards, the periodic rate is a monthly rate. You can calculate your card’s periodic rate by dividing the APR by 12. 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 you divide that by 12 and get 0.33 percent. That’s your interest every month.
The elimination of any claims against title.
This is a cheque issued from your personal chequing account rather than issued by the bank.
Personal property is essentially any property except for real estate. The main thing that differentiates personal property from real estate is that you can move personal property, which you cannot do with land or buildings, which are permanent fixtures.
A piggyback loan is 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 your deposit.
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 or 80-10-10 mortgages as they are alternately called, are transactions by which two separate mortgages are originated at once. 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.
A type of mortgage that may be carried by the borrower from one home purchase to the next, portable.
With a portable loan you can sell your house and move without having to refinance your loan, saving you potentially thousands of dollars in exit fees and new application fees. To qualify for portability your new loan amount may need to be the same or less than the existing loan, and you may also have to pay your 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.
Power of Attorney
A legal document that grants an individual the rights 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.
A 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.
A lender that is closely affiliated with a brokerage based on reputation and other industry factors. A mortgage lender that is recommended by a broker.
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.
Prepayment refers to a loan which 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 your monthly mortgage payments and/or make a lump sum payment against the principal of your outstanding mortgage balance each year.
Prepayment penalty is 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. Your lender gives you information about the exact amount you are 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.
A non-binding evaluation of a prospective borrower’s finances to determine how much he or she can borrow and on what terms. A pre-qualification letter is a less formal version of a pre-approval letter.
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
Where both the principal amount and the interest charges are repaid over the term of your loan.
Principal Place of Residence (PPOR)
The property you live in most of the time rather than an investment or holiday home.
A private mortgage is 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
Private mortgage lenders are 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 your property without employing the help of a real estate agent. This will require you to do your own advertising and open inspections but will mean you avoid paying a percentage of your sale price as commission to an agent.
Progress Advance Loan
A loan made usually to a builder where monies are advanced from time to time as construction progresses.
A promissory note is 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.
It is 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.
Property tax is 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.
Property value refers to 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.
This refers to 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.
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.
It is the actual price you purchase a home for.
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-money mortgage is 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.
Quit Claim Deed
A Quitclaim deed is used to transfer the whole of the ownership of a property from one party to another, 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.
As calculated by lenders, the percentage of income that is spent on housing debt and combined household debt.
A time period (typically 30-120 days) during which you can lock in the current best mortgage rate. If rates go down during this time, most lenders will honour the lower rate.
A rate lock is 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.
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 if you are going to be in a home for more than five years.
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.
A readvanceable mortgage is a feature of some mortgage lines of credit, including home equity lines of credit (HELOC).
When your loan balance has changed significantly from the original amount – for example if you have made a lump sum payment, or been paying your loan for some time – you may have your lender recalculate the minimum repayment required to repay the outstanding amount over your loan term.
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
A 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.
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.
Reconveyance is the transfer of a title to the borrower after a mortgage has been fully paid.
A recourse loan is 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.
Redemption is 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.
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.
When you replace or extend your existing loan with funds from a new lender or from the same institution.
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.
Rentable Area Multiple Tenancy Floors
Generally 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
Generally 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 area within outside walls less areas not used exclusively by the tenant.
A rental cap is a limit on the number of renters allowed in a condo building or development (also known as owner-occupancy rates). If you own a property with a rental cap and the rental cap has been met, you must add your name to the HOA waiting list before you can rent out your unit. If you’re buying a property with a rental cap, note that some mortgage loans have rental cap requirements, in which purchasing a property with a high percentage of renters may limit the number of mortgage loans available to you. Carefully review all HOA documentation and consult with your lender and real estate agent before purchasing a property with a rental cap.
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.
This is 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.
A reserve fund is 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.
Residential Real Estate
Residential real estate is 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.
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.
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 death of any joint owner, his interest in the land will pass to the surviving co-owner, rather than to his heirs or devisees.
A general pathway may be part of your property, giving them the right to cross your land.
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).
Risk tolerance is 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.
Roll in is 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.
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
Sale of loan portfolio is 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 USA.
A search is 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.
Financing real estate with a loan, or loans, that are subordinate to a first mortgage.
A mortgage registered secondly on title after another mortgage. A third mortgage is registered thirdly and so on.
Second 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, securitisation is the process whereby assets which 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.
Security is an asset which guarantees your lender all or part of your loan until the loan is repaid in full. It is usually the property you have borrowed to buy which is the security for the loan.
A security freeze, sometimes called a credit freeze, is when you block access to your credit score, so this data won’t be released without your permission. The purpose of a security freeze is to avert unauthorized use of your credit score which, among other things, makes it difficult for someone to fraudulently obtain credit in your name.
A loan that is backed by collateral, such as an auto loan or a loan that finances the purchase of some appliances or furniture.
Seller’s market is 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.
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.
Semi-detached buildings are buildings that are partially attached to each other.
Semi Monthly Mortgage Payments
Semi monthly mortgage payments are structured for 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 short sale in real estate is 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.
Signature loans are 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.
Simple interest is 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).
Unlike a condominium, in which certain areas are shared between individual homeowners, a SFR is a private unit intended for occupancy by a single family.
Many lenders give borrowers the option to skip between 1 and 4 monthly mortgage payments each year. If you decide to skip a payment, you won’t be making one of your regular mortgage payments (principal + interest). Note that when you skip a payment, not only do you miss the opportunity to pay down your mortgage balance, the interest is still charged and added to your mortgage balance.
A soft inquiry, 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 special assessment is 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.
The specification is 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 which 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, you may be able to make additional repayments and use a redraw facility on your variable loan portion, where the interest rate and repayments will stay the same for the fixed rate portion. You 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 favourable 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 which provides for equal, regular lump sum payments of principal, usually quarterly, plus accrued interest.
Statement of Adjustment
On closing day, when everything else is said and done, two statements of adjustments are made: one for the buyer and one for the seller. Each statement is made by the respective real estate lawyer and outlines the closing costs each person will have to pay that day.
An expedited refinance that requires limited underwriting and may even forego the need for an appraisal.
It is the act of dividing land into pieces that are easier to sell or otherwise develop.
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. Some could obtain loans from mainstream lenders if they properly shop the market.
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.
Refers to loans 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.
Equity created by a purchaser or homeowner by performing work on a property being purchased or refinanced.
If you choose to change from one loan type to another while retaining the same lender your lender may charge you a switching fee to cover their 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 performance of a certain event.
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.
Teaser loans is 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.
A teaser rate, also known as an introductory rate, is a below-market interest rate that lasts for a limited period of time.
The tenancy is the right to occupy the property.
Tenants in Common
It is 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.
It represents 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 he 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 terrace is a row of buildings all connected.
Third Party Guarantee
When another person, usually a close family member, offers their property as security for your loan.
The means of 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.
It a signed legal document that transfers the title of an asset to a new holder, granting them the privilege of ownership. It ccontains 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.
Title insurance 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 title loan is a personal loan secured by the title of an asset, most commonly.
A title search is 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 a number of 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 document registered in the municipal office responsible for land titles that records any change of property ownership.
Transfer of Charge
Assignment of a mortgage.
Transfer tax refers to 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.
A trust is the 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.
A written instrument duly executed, sealed, and delivered, conveying or transferring property to a trustee, usually but not necessarily covering real property.
Securities, instruments, or other property deposited by two or more persons with a third person (trustee), to be delivered on performance of a certain event.
An agreement in writing conveying property from the owner to a trustee for the accomplishment of the objectives set forth in the agreement.
A trustee is 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. The trustee is compensated for this work, which is one reason why complex trusts can be very expensive to set up and maintain.
Turn-key is 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 which is not affected by liabilities, charges or restrictions such as easements on the property, mortgages or leases which can affect your 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 underwriter is 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. Some lenders use underwriters who work within their firms, but also may outsource to underwriters working for other banks or mortgage lending institutions outside the province. Sometimes loans can take longer to get approved when a lender works with an out-of-state underwriter with less local knowledge.
It is the process conducted when a borrower’s loan application is analysed and determines the amount of risk involved in lending. Underwriting reviews the applicant credit history, and includes a judgement of the property’s value.
Upfront costs are 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.
These are the fees the buyer is obligated to pay upfront for any loan or property purchase they may include establishment or 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.
The ratio between the credit limits on your accounts and the outstanding balances. This ratio shows lenders how much of your available credit you are using overall.
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 vacancy rate is 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 variable rate mortgage is 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 which 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 which is made to any part of the loan contract to satisfy your individual lending or application requirements, or to encompass changes or additions to your 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
It means you will pay a quarter of the monthly amount due each week. When your monthly mortgage payment is multiplied by 12 months and divided by the 52 weeks in a year. The amount is withdrawn from your bank account every week, so you make 52 payments per year.
Working capital is 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 which is 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.
A yield curve is 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.
Zoning is 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.
A zoning variance is an exception to a zoning ordinance that’s granted on a case-by-case basis by a local government.