Glossary
Adjustments
Property
taxes and/or utility bills and condo expenses, if any, that have been
prepaid by the vendor are pro-rated and paid by the purchaser to the
vendor upon closing.
Amortization
Number of years it takes to repay the entire amount of the mortgage.
Appraisal
A
process undertaken by an independent appraiser, hired by the bank, to
determine the value of the property and decide whether the property
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
payments do not change.
Breakage costs
A
sum of money paid to compensate the lender for the prepayment of a
closed mortgage in part or in full prior to maturity of the term.
Certificate of location
A
document prepared by a qualified surveyor specifying the exact size and
location of the property and describing the type and size of the
building(s), including additions, and the exact location of the
building(s) on the property.
Closed mortgage
A
mortgage that cannot be pre-paid, re-negotiated, or re-financed prior
to the expiry of the term unless breakage costs are paid to the lender.
Closing costs
Costs
that are payable when the sale is closed. Standard closing costs
include adjustments for repayment of taxes; utilities and condominium
common expenses, if any, made by the vendor; property land transfer
taxes; property insurance; and legal fees.
Conditional offer
An
offer to purchase subject to specified conditions. These conditions
could 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.
Conventianal mortgage
For
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.
Convertible mortgage
A
fixed-rate mortgage that offers the same security as a closed mortgage
but can be converted to a longer, closed mortgage at any time without
penalty.
Deed
The
document prepared by a lawyer or notary, containing a detailed
description of the property that transfers ownership from the vendor to
the purchaser. This document is then registered against the title to
the property as evidence of ownership.
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
sum of money paid by the purchaser on making an offer. These funds are
usually held in trust by the real estate broker or the vendor’s lawyer
or notary until the closing of the sale.
Down payment
The
lump sum paid that accounts for the difference between the property
sale price and the mortgage during the initial financing stages.
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.
Equity
The
interest the owner holds in a property over and above all claims to the
property. It is usually the difference between any outstanding mortgage
amounts 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 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 a pre-determined
term, usually between six months and 25 years – and can be opened or
closed.
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.
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 rate is usually
expressed as an annual percentage rate.
Lender
The individual, party or financial institution who lends the money.
Mortgage default insurance
This insurance is available in all urban areas and is mandatory for borrowers with a down payment of less than 25%.
Mortgagee
A lender who advances a mortgage to a borrower, where repayment of the loan is secured by a charge on real property.
Mortgagor
A borrower who gives title to or a charge on real property to a mortgage to secure repayment of a mortgage loan.
Open mortgage
A mortgage that can be prepaid at any time to maturity, without breakage costs.
Prepayment 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
prepayment option is exercised under a closed mortgage.
Principal
The amount of the loan owed to the lender at any specified time, not including interest.
Term
The
length of time during which the specified mortgage agreement is in
effect. 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
The right of ownership of property.
Variable-rate mortgage (floating rate)
A
mortgage where payments are set for a period of one to two years or
longer. Interest rates may fluctuate during this time. If rates
decline, more of your payment goes towards reducing principal. If rates
increase, a larger portion of the payment goes to covering interest.
Variable-rate mortgages may be open or closed.
Zoning laws
Municipal laws prescribing the use of land for specific purposes and the use to which buildings on the land may be put.