GLOSSARY OF |
MORTGAGE |
TERMS |
ADJUSTMENTS
Property taxes and/or utility bills and condominium common expenses, if any, that have
been prepaid by the vendor are pro-rated and paid by the purchaser to the vendor on
closing.
AMORTIZATION
Number of fixed payments or years it would take to repay the entire amount of the
mortgage.
APPRAISAL
A process undertaken by an independent appraiser hired by the lender to determine the
value of the property and whether it meets lending criteria. This value may or may
not match the purchase price of the home.
BLENDED PAYMENTS
Equal payments consisting of both a principal and an interest component paid each month
during the term of the mortgage. The principal portion increases each month while
the interest portion decreases. The monthly payment does not change during the term.
BREAKAGE COSTS
A sum of money paid to compensate the lender for the pre-payment of a closed mortgage, in
part or in full, prior to maturity of the term.
CERTIFICATE OF LOCATIONS
A document prepared by a qualified surveyor specifying the exact size and location of the
property and describing the type and size of the house including additions.
CLOSED MORTGAGE
A mortgage which cannot be prepaid, renegotiated or refinanced prior to the expiry of the
term, except with compensation or breakage costs.
CLOSING COSTS
Costs which are payable when the sale is closed.
Standard closing costs include adjustments, for pre-payment of taxes, utilities and
condominium common expenses, if any, made by the vendor; land transfer taxes; property
insurance; and legal/notarial fees.
CONDITIONAL OFFER
An offer to purchase, subject to specified conditions. These conditions may include
the arranging of satisfactory mortgage financing, a satisfactory inspection, or the
selling of a present home. A time limit in which the specified conditions must be
met should be stipulated in the offer to purchase.
CONVENTIONAL MORTGAGE
A first mortgage - the principal amount of which cannot exceed 75% of the lesser of the
appraised value of the property or the purchase price for the property for a fixed term.
DEED
The document prepared by a lawyer or notary containing a detailed description of the
property which transfers ownership from the vendor to the purchaser. This document
is then registered against the title to the property as evidence of ownership. Also
called a transfer in some provinces.
DEFAULT
Non-payment by the borrower of the installments due under the mortgage when due, or
failure to fulfill any other term or condition of the mortgage.
DEPOSIT
A sume of money paid by the purhaser on making an offer. Usually held in trust by
the real estate broker or the vendor's lawyer or notary until the closing of the sale.
EASEMENT
The right acquired for access to or over another person's property for a specific purpose,
such as for a driveway or public utilities. This is referred to as
"servitude" in Quebec.
EQUITY
The interest the owner holds in a property over and above all claims to the property.
It is usually the difference between the mortgages and the market value of the
property.
FIRE AND PROPERTY INSURANCE
Before the closing date, the purchaser must have fire and property insurance arranged and
in effect. Evidence of the insurance is required by the mortgage lender prior to
advancing mortgage funds.
FIXED-RATE MORTGAGE
The interest rate on a fixed-rate mortgage is set for the full term of the mortgage and
cannot be renegotiated - except upon payment of breakage costs. Interest is
calculated semi-annually, not in advance.
FORECLOSURE
A legal procedure whereby the lender obtains ownership of the property following default
by the borrower by terminating all of the borrower's rights in the property covered by the
mortgage.
GROSS DEBT SERVICE RATIO
The percentage of the borrower's gross income that will be used for monthly payments of
principal, interest, taxes, heating and condominium fees.
HIGH RATIO INSURED MORTGAGE
When the down payment is less that 25% (to a minimum of 5%) the mortgage amount must be
insured against default.
INSPECTION
The examination of the house for structural and other defects by an expert selected by the
buyer.
INTEREST RATE
The rate of return the lender receives for permitting the borrower to use the mortgage
money for a specified term. The interest is usually expressed as an annual
percentage rate.
LENDER
The individual, party or financial institution from whom money is borrowed. Also
known as the mortgagee (or chargee), in the case of a mortgage loan.
MORTGAGEE
A lender who takes a mortgage to secure repayment of the loan.
MORTGAGE LIFE INSURANCE
Insurance from which the benefits are intended to pay off the balance due on the mortgage
upon the death of the insured borrower. The intent is to protect survivors from
losing their home.
MORTGAGOR
A borrower who gives title to, or a lien on, real property to a mortgagee to secure
repayment of a mortgage loan.
OFFER TO PURCHASE
A written contract setting out the terms under which the buyer agrees to purchase a
property. Upon acceptance by the sell, it forms a contract which determins the
rights and obligations of the buyer and seller concerning the purchase and sale. It
includes the legal and/or municipal description, purchase price, closing date, mortgage
and terms of repayment, and lists specific items included in or excluded from the sale.
OPEN MORTGAGE
A mortgage which can be prepaid or retired at any time prior to maturity without breakage
costs.
PRE-PAYMENT OPTION
The right to pay specified amounts of the principal balance prior to the maturity date of
the mortgage. Breakage costs may be payable when a pre-payment option is exercised
under a closed mortgage.
PRINCIPAL
The amount of the loan owed to the lender at any specified time, not including interest.
REAL ESTATE AGENT
An agent employed to negotiate the purchase and sales transaction between the buyer and
the seller who is licensed to carry out such activities.
SERVITUDE
(see Easement)
SURVEY
(see Certificate of Location)
TERM
The length of time during which the specific mortgage agreement is effective. When
the term expires, the balance of the principal is either repaid in full or the mortgage is
renegotiated at then-current market rates and conditions.
TITLE
Right of ownership of property, and including evidence of such ownership.
TOTAL DEBT SERVICE RATIO
The percentage of the borrower's gross monthly income that will be used for monthly
payments of principal, interest, taxes, heating and other outstanding loans and debts.
VARIABLE-RATE MORTGAGE (FLOATING RATE)
A mortgage in which payments are fixed for a period of one to two years, although interest
rates may fluctuate from month to month depending on market conditions. If interest
rates go down, more of the payment goes towards reducing the principal; if rates go up, a
larger portion of the monthly payment goes towards covering the interest. Most
variable-rate mortgages allow pre-payment of any amount (with certain minimums) on any
monthly payment date and usually without breakage costs.
ZONING LAWS
Municipal laws prescribing the use of land for specific purposes, and the use to which
buildings on the land may be put.