Amortization
The
period of time, from 15, 20, 25, 30 and now more recently 35 years, required
to reduce a debt to zero when payments are made regularly.
Appraisal
A process
for estimating the market value of a particular property. It can help
the purchaser determine what price to offer. It can also be used by the
lender for mortgage purposes. The appraised value seldom matches the actual
purchase price exactly as other factors influence price.
Approved
Lender
A lending
institution authorized by the Government of Canada through CMHC to make
loans under the terms of the National Housing Act. Only Approved Lenders
can negotiate mortgages which require mortgage loan insurance.
Assumption
Agreement
A legal document signed by a home buyer that requires the buyer to
assume responsibility for the obligations of a mortgage by the builder
or the original owner.
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Blended
Payment
A mortgage
payment that includes principal and interest. It is paid regularly during
the term of the mortgage. The payment total remains the same, although the
principal portion increases over time and the interest portion decreases.
Building
Permit
A certificate
that must be obtained from the municipality by the property owner or contractor
before a building can be erected or repaired. It must be posted in a
conspicuous place until the job is completed and passed as satisfactory
by a municipal building inspector.
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Closing
Costs
Costs, in addition to the purchase price of the home, such as legal
fees, transfer fees and disbursements, that are payable on the closing date.
Closing costs typically range from 1.5%-4% of a home`s selling price.
Closing
Date
The date on which the sale of a property becomes final, (money is
exchanged via the lawyers and title registration is made). This is not
neccessarily the possession date.
CMHC
Canada Mortgage
and Housing Corporation. A Crown corporation that administers the National
Housing Act for the federal government and encourages the improvement
of housing and living conditions for all Canadians. CMHC also creates
and sells mortgage loan insurance products.
Conditional
Offer/ Conditions of Sale
An Offer
to Purchase that is subject to specified conditions, for example, the
arranging of a mortgage. There is usually a stipulated time limit within
which the specified conditions must be met.
Collateral
Mortgage
A mortgage
which secures a loan by way of a promissory note. The money which is borrowed
can be used to buy a property or for another purpose such as home renovation
or for a vacation.
Commitment
Letter/ Mortgage Approval *IMPORTANT*
Written notification from the mortgage lender to the borrower that
approves the advancement of a specified amount of mortgage funds under
specified conditions. This is NOT what is known as a "Pre-approval"!
Pre-approvals generally come from a lender's 'Mortgage Consultant' and
are generally an overview of one's covenant or financial status but little
work is investigated by the lender. It amazes me what some people think
they can go out and buy, burn their gas driving all over town looking
at homes they think they can afford, only to have their dreams shot down
at the 11th hour by some small oversight that a Mortgage Consultant made
to hook you in. Have your mortgage commitment in writting - and do not
be influenced to sign your commitment letter. Just obtain a copy. Read,
Discuss & Clarify the conditions of your commitment letter carefully
or better yet let Tom or Gary read it for you. Remember, the banks are
in business for themselves and will not offer you anything more than they
have to. Incase you choose not to use our free services in obtaining a
mortgage, at least use an experienced Mortgage Broker.
Conventional
Mortgage Loan
A mortgage
loan up to a maximum of 75% of the lending value of the property. Mortgage
loan insurance is not required for this type of mortgage.
Covenant: A
clause in a legal document which, in the case of a mortgage, gives the
parties to the mortgage a right or an obligation. For example, a covenant
can impose the obligation on a borrower to make mortgage payments in certain
amounts on certain dates. A mortgage document consists of covenants agreed
to by the borrower and the lender.
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Deed
A legal document
which is signed by both the vendor and purchaser, transferring ownership.
This document is registered as evidence of ownership.
Default
Failure
to abide by the terms of a mortgage loan agreement. A failure to make
mortgage payments (defaulting on the loan) may give cause to the mortgage
holder to take legal action to possess (foreclose) the mortgaged property.
Deposit
Money placed
in trust by the purchaser when an Offer to Purchase is made. The sum is
held by the real estate representative or lawyer until the sale is closed,
and then paid to the vendor.
Discharge
of Mortgage
A document signed by the lender and given to the borrower when a mortgage
loan has been repaid in full.
Down
Payment
The portion of the house price the buyer must pay up front from personal
resources, before securing a mortgage. It generally ranges from 5%-25%
of the purchase price. Note: It is possible to purchase a home with
zero down payment, or even receive funds for buying.
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Easement
A right acquired
for access to or over, or for use of, another person’s land for a specific
purpose, such as a driveway or public utilities.
Encumbrance
A registered
claim for debt against a property, such as a mortgage.
Equity
The difference
between the price for which a home could be sold and the total debts registered
against it. Equity usually increases as the outstanding principal of the
mortgage is reduced through regular payments. Market values and improvements
to the property also affect equity.
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Foreclosure
A legal procedure
in which the lender gets ownership of the property if the borrower defaults
on the mortgage loan.
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Gross
Debt Service Ratio (GDS)
The percentage
of the borrower’s gross monthly income that will be used for monthly
payments of principal, interest, taxes, heating costs and half of any condominium
maintenance fees.
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High-ratio
Mortgage
A mortgage
loan in excess of 75% of the lending value of the property. This type of
mortgage must be insured — for example, by CMHC — against payment
default. Note: CMHC is not the only game in town when obtaining a high ration
mortgage
Holdback
An amount
of money withheld by the lender during the progress of construction of
a house to ensure that construction is satisfactory at every stage. A
standard holdback amount is 10% of the total cost of the building project.
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Interest
The cost of borrowing money. Interest is usually paid to the lender
in installments along with repayment of the principal loan amount.
Interest
Adjustment Date (IAD)
A date from
which interest on the mortgage advanced is calculated for your regular
payments. This date is usually one payment period before regular mortgage
payments begin. Interest due from the date your mortgage is advanced to
the IAD is due on closing.
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Lending
Value
The purchase
price or market value of a property, whichever is less.
Lien
(Mechanic’s)
A claim
against a property for money owing. A lien may be filed by a supplier
or a subcontractor who has provided labour or materials but has not been
paid. A lien must be properly filed by a claimant. It has a limited life,
prescribed by statute that varies from province to province. If the lienholder
takes action within the prescribed time, the homeowner may be obliged
to pay the amount claimed by the lien-holder. Alternatively, the lienholder
may force a sale of the property to pay off the debt.
Loan-to-value
Ratio
The ratio
of the loan to the lending value of a property expressed as a percentage.
For example, the loan-to-value ratio of a loan for $90,000 on a home which
costs $100,000 is 90%.
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Maturity
Date
The last day
of the term of the mortgage agreement. On this day the mortgage loan must
be either paid in full or the agreement renewed.
Mortgage
A mortgage
is security for a loan on the property that you own. It is your personal
guarantee to repay the loan as well as a pledge of the property as security
for the loan.
Mortgage
Loan Insurance
If you have
a high-ratio mortgage (more than 75% of the purchase price), your lender
will require mortgage loan insurance — available from CMHC or a private
insurer. The insurance premium will cost between 0.5% and 3.25% of the
amount of the mortgage (additional charges may apply).
Mortgage
Life Insurance
This insurance guarantees that if you die your mortgage will be paid
in full. This insurance can be conveniently purchased through your lender
and the premium added to your mortgage payments. Talk to Tom or Gary about
this, it is their recommendation not to take out mortgage life
insurance through the lender you have chosen for your mortgage, but rather
shop it out!
Mortgage Payment
A regularly scheduled payment that is blended to include both principal
and interest.
Mortgagee
The lender who provides the mortgage loan.
Mortgagor
The borrower
who pledges the property as security for the loan.
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Net
Worth
Your total
financial worth, calculated by subtracting your total liabilities from your
total assets.
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Offer
To Purchase
A written
contract setting out the terms under which the buyer agrees to buy. If accepted
by the seller, it forms a legally binding contract subject to the terms
and conditions stated in the document.
Option
Agreement
A document
stipulating that, in exchange for a deposit, a specified individual is
to be given the first chance of buying a property at or within a specified
period of time. An option holder who does not buy at or within the specified
period loses the deposit and the agreement is canceled.
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P.I.T.
Principal,
interest and taxes - payments due on a regular basis under the terms of
the mortgage agreement. Generally, payments are made monthly and include
one-twelfth of the estimated annual municipal and school taxes. Since these
taxes change from year to year, this section of the mortgage will change
accordingly.
P.I.T.H.
Principal,
interest, taxes and heating - costs used to calculate the Gross Debt Service
ratio (GDS).
Principal
The amount
of money actually borrowed.
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Realtor
A Real Estate
representative who is a member of an organization of persons engaged in
the business of buying and selling real estate, such as the Canadian Real
Estate Association. The standards of British Columbia Real Estate Practises
and Code of Ethics are among the highest in North America.
Refinance
To pay off
a mortgage or other registered encumbrance and arrange for a new
mortgage, sometimes with a different lender. It is not Tom and Gary's
recommendation to just sign the renewal form from your existing lender
when your mortgage term comes due. Let us shop it out for you! Always
keep your lender on their toes to ensure they are always giving you the
best possible rates and terms.
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Second
Mortgage
An additional
mortgage on a property that already has a mortgage.
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Term
The length
of time during which a mortgagor pays a specific interest rate on the mortgage
loan. The entire mortgage principal is usually not paid off at the end of
the term because the amortization period is normally longer than the term.
Title
A freehold
title gives the holder full and exclusive ownership of land and buildings
for an indefinite period of time. In condominium ownership, land and common
elements of buildings are owned collectively by all unit owners, while
the residential units belong exclusively to the individual owners, (a.k.a.
freehold strata). A leasehold title gives the holder a right to use and
occupy land and buildings for a defined period of time. Leaseholds can
be a risk for more than one reason and are not as easy to finance as a
freehold property, thus making the property less marketable and/or desirable.
Total
Debt Service Ratio (TDS)
The percentage
of gross monthly income required to cover all monthly payments for housing
and all other debts, such as car payments.
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Vendor
Take Back Mortgage
Mortgage financing
arranged between the seller of the property and the buyer. The title is
transferred to the buyer. Often this type of loan is a second mortgage which
the seller is willing to arrange at below market rates to ensure the buyer
can purchase the house. Most of these arrangements are not renewable or
transferable to the next owner of the house.
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Zoning
Bylaws
Municipal
or regional laws that specify or restrict land use.
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