Financial Glossary
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Acceleration
Clause
A provision in a mortgage that gives the lender the
right to demand payment of the entire principal balance if a
monthly payment is missed.
Acceptance
An offeree's consent to enter into a contract and be
bound by the terms of the offer.
Adjustable-rate Mortgage (ARM)
A mortgage that permits the lender to adjust its interest
rate periodically on the basis of changes in a specified index
Adjustment Date
The date on which the interest rate changes for an
adjustable-rate mortgage
Adjustment Period
The period that elapses between the adjustment dates
for an adjustable-rate mortgage
Agreement of Purchase and Sale/Offer to Purchase
Is a contract in which the buyer, generally through a real estate
agent if for a resale home, offers to the seller a certain price
for a home, and if the seller accepts the Offer within a stipulated
time limit, it becomes a legally binding agreement on all the
parties concerned. However, the Offer may be subject to
certain conditions included in the Offer, such as, conditional
upon the purchaser arranging satisfactory mortgage financing,
conditional on obtaining a satisfactory report from a
home inspector hired by the buyer, conditional upon the selling
of the buyer's present home, etc.
A purchase should never be made without including a condition
on financing. If the Offer is not accepted or not counter-offered
by the seller within a specific period, it is considered void
(no longer valid). If accepted by the parties concerned,
the Offer is a legally binding contract, a copy of which is
given to the lawyer in order to prepare the final documentation,
and the lender gets a copy to prepare the mortgage, after obtaining
a satisfactory property appraisal and credit report.
Amortization period
Is the total number of years it takes to pay off the entire
mortgage on the property. The longer the amortization
period, the more money the borrower pays in interest.
In Ontario, most borrowers initially choose an amortization
period of 25 years; however amortization periods
of 35-40 also exist. Depending on your mortgage or the
lender's current policy, you can reduce the amortization period
by increasing the amount of your payments and/or making a lump-sum
payment towards the principal, and/or by choosing "accelerated"
weekly or biweekly payments.
Amortization Schedule
Based on the amortization period chosen by the borrower,
an Amortization Schedule is provided to the borrower
by the lender, at no charge. It is a very informative
statement, showing the breakdown of each payment by principal,
interest, and diminishing balance, and the total interest cost
for the term of the loan.
Appraisal
Is an estimate of the property's current market value for lending
purposes (or for some other purpose) by a qualified appraiser.
An independent appraisal is required by the lender prior to
their granting a mortgage, at the purchaser's expense. It
is in your interest that the appraisal be as close to the price
you are paying for the home as possible, for mortgage purposes
as well as for assurance that you are getting value for your
money.
Appreciation
An increase in the value of a property due to changes
in market conditions or other causes. The opposite of depreciation.
Assessed Value
The valuation placed on property by a public tax assessor
for purposes of taxation.
Assumable mortgage
is a mortgage loan that is currently on the property
that the purchaser intends to buy, which the purchaser can take
over from the seller if he/she wants to (subject to the lender's
approval), and the purchaser accepts the responsibility for
making the mortgage payments to the lender. It is assumable
based on the conditions in the mortgage contract. This
is also known as Assignment.
Assumption Agreement
A legal document signed by a home buyer which requires
the buyer to assume responsibility for the obligations of a
mortgage made by a former owner.
Bi-weekly Accelerated Payments
Payments are exactly half of a monthly payment amount,
collected every two weeks, on the same day of the week. More
aggressive than semi-monthly.
Blend-and-extend option
Some lenders may allow you to extend the length of
your mortgage prior to your renewal date, to take advantage
of current low rates by creating a new mortgage. If the
lender approves, a closed mortgage can be broken (opened) to
extend the term, and may include a penalty for breaking the
mortgage which will be included in the new mortgage with the
rate for the new longer term. A new mortgage is created
with an interest rate somewhere between the two original rates.
Blended mortgage payments
These are the most common types of mortgage payments.
The regular payment consists of both principal and interest
(the interest rate is fixed for the term of the mortgage).
Although the payment amount remains the same, the principal
portion increases while the interest portion decreases with
each payment.
Breaking a mortgage
Means paying off the closed mortgage completely before
the end of its term, by paying a penalty and other costs.
This can only be done if allowed by your mortgage contract,
or if the lender permits it. Or you could break the mortgage
to take advantage of a lower interest rate.
Bridge financing
Is money borrowed for a short term against a homeowner's
equity in a property, to bridge the time gap between the closing
date on the purchase of the new home and the closing date on
the sale of the current home.
Buyer Agency Agreement
is a written agreement that establishes a formal and
exclusive relationship between the potential buyer and the real
estate broker and its sales representative(s).
Carrying costs
Are the costs of maintaining a property, such as property
taxes, mortgage payments, condominium fees, insurance, repairs,
and utilities.
Charge/Mortgage of Land (Form 2)
Once a mortgage loan has been provided to the borrower
and all the required documentation has been prepared, this completed
form is then registered with the Land Registrar, and a numbered
copy of the Standard Charge Terms is included. A copy
of the Charge Terms should also be given to the borrower, attached
to Form 2. Should any information within the Set of Standard
Charge Terms conflict with Form 2, Form 2 shall prevail. Whether
a borrower is purchasing a home or refinancing an existing mortgage,
the borrower should always receive a copy of the Charge (Form
2).
Chattel
is any personal property which is tangible and movable.
Some examples are fridge, stove, window coverings, light fixtures,
satellite dish, and chandelier, that is, anything that can be
easily removed from the real property without causing any damage
to the property.
Closed mortgage
is a mortgage agreement that may not be prepaid, renegotiated
or refinanced during the term of the loan, unless the lender
agrees, and, if so, usually with a penalty cost. Closed
mortgages generally range from 6 months to 10 years.
Closing costs
Are all the other costs of acquisition, excluding the
purchase price of the property, such as the cost of processing
the mortgage, mortgage broker's fee if applicable, property
appraisal, home inspection, property survey for a freehold (noncondominium)
property if required, property insurance (proof of home insurance
is required by the lender before the mortgage funds can be released),
legal fee, plus out-of-pocket disbursements incurred by the
lawyer on your behalf, the cost of Title Insurance if a policy
is purchased for you by your lawyer. Land Transfer Tax, reimbursement
to the seller for the unused prepaid portion of property taxes
and utilities.
Closing date of transaction
In Ontario, the closing date is the date on which the
transaction is legally finalized, the date on which the money
is paid by the purchaser for the property and the new owner
takes possession of the property. The title and keys to
the property are transferred from the seller to the buyer at
that time.
CMHC (mortgage)
Subject to the loan being approved by the Canada Mortgage and
Housing Corporation (a federal government agency), CMHC protects
the lender in case of default by the borrower, by obliging the
borrower to pay for CMHC insurance on the loan when the down
payment is below 25%. There is no CMHC cost if the down payment
is at least 25% (it may be more than 25% for investment or rural
properties). Although the borrower can pay the CMHC premium
up front, it's usually added to the loan. Genworth Financial
Canada (GE Canada's new name) is a private firm that provides
a similar type of default insurance.
Commitment letter
Is a written commitment (Mortgage Commitment) from
a lender, upon loan approval (based upon a satisfactory property
appraisal, survey if applicable, and credit report) to a borrower,
undertaking to lend mortgage funds for the property being purchased
or refinanced, and based on certain conditions that must be
met within a specified period.
Compound Interest
Interest paid on the original principal balance and
on the accrued and unpaid interest.
Condominium
A real estate project in which each unit owner has
title to a unit in a building, an undivided interest in the
common areas of the project, and sometimes the exclusive use
of certain limited common areas
Contingency
A condition that must be met before a contract is legally
binding. For example, home purchasers often include a contingency
that specifies that the contract is not binding until the purchaser
obtains a satisfactory home inspection report from a qualified
home inspector.
Conventional versus high-ratio mortgage
A conventional mortgage is a first mortgage issued
for up to 75% of the purchase price or the appraised value of
the property, whichever is lower. A mortgage exceeding this
limit must be insured with CMHC or Genworth Financial Canada
(GE Canada's new name), and is called a high-ratio mortgage.
Convertible mortgage
Is a mortgage, generally short term, which lets you
convert to a long-term closed mortgage with a fixed interest
rate at any time within the short term, without penalty, but
only with the same lender. If interest rates are lower
elsewhere, the borrower cannot switch to another lender after
the short term ends.
Credit report
Is a check of your credit standing at any particular
time. Most lenders do a credit check when you apply for
a mortgage loan The financial institution often does a final
credit check just before the closing date, and the lender might
reduce your loan amount based on your credit report at that
time, or might even refuse financing if your credit rating and
financial
Debt-service Ratio
The percentage of the borrower's gross income that
will be used for monthly payments of principal, interest, taxes,
space heating costs and condominium fees.
Deed
Is a legal document which gives the purchaser title
to the property, also called a transfer.
Default
A borrower is in default when he or she fails to make
payments as required on the loan. Some lenders even regard
late payments as default. Frequent late payments can damage
your credit rating and will be taken into account when you try
to renew the loan and they may affect your mortgage life insurance
policy, if you have one. Equifax Canada, a credit reporting
agency, states that sometimes payments even only one day late
are reported to them and recorded on your credit report.
Deposit
Is the amount of money the purchaser presents to the
seller with the Offer on the property, generally through a real
estate agent for a resale home, to show serious commitment on
the buyer's part.
Depreciation
A decline in the value of property; the opposite of
appreciation
Discharge of Mortgage
Is a legal document that formally acknowledges that
you have paid off the mortgage loan completely and that the
debt has been discharged. Once a mortgage loan has been
paid off and removed from the property and the Discharge of
Charge/Mortgage has been received from the lender, it is important
for you or your lawyer to immediately register it (after making
a copy for yourself, to keep permanently) with the local Land
Registry Office. This is also called the Discharge Mortgage
Certificate.
Down payment
Is the portion of the purchase price of the property
that the purchaser puts down (pays) on the closing date.
It is the difference between the purchase price and the amount
financed.
Easement
A right of way giving persons other than the owner
access to or over a property.
Effective Interest Rate
The real rate of interest after the effects of compounding
is included. More frequent compounding adds up to a higher effective
rate.
Encroachment
An improvement that intrudes illegally on another’s
property.
Encumbrance
Anything that affects or limits the free simple title
to a property, such as mortgages, leases, easements, or restrictions.
Equity
A homeowner's financial interest in a property. Equity
is the difference between the fair market value of the property
and the amount still owed on its mortgage.
Exclusive Listing
A written contract that gives a licensed real estate
agent the exclusive right to sell a property for a specified
time, but reserving the owner’s right to sell the property
alone without the payment of a commission.
Fair Market Value
The highest price that a buyer, willing but not compelled
to buy, would pay, and the lowest a seller, willing but not
compelled to sell, would accept.
Firm Commitment
A lender’s agreement to make a loan to a specific
borrower on a specific property.
First Mortgage
A mortgage that is the primary lien against a property.
Fixed Installment
The monthly payment due on a mortgage loan. The fixed
installment includes payment of both principal and interest.
Fixed-rate Mortgage (FRM)
A mortgage in which the interest rate does not change
during the entire term of the loan.
Fixture
Personal property that becomes real property when attached
in a permanent manner to real estate.
Flood Insurance
Insurance that compensates for physical property damage
resulting from flooding. It is required for properties located
in federally designated flood areas.
Foreclosure
The legal process by which a borrower in default under
a mortgage is deprived of his or her interest in the mortgaged
property. This usually involves a forced sale of the property
at public auction with the proceeds of the sale being applied
to the mortgage debt
Freehold property
Is unrestricted ownership of real estate that includes
the land, building and any improvements on the land, for example,
a freehold town home or any other property that is not a condominium.
The owner of a condominium unit owns only the unit itself and
shares the common elements for which the condo owner has to
pay a proportionate monthly fee towards their maintenance and
repairs.
Genworth Financial Canada (the new name for GE Canada)
Is a private insurer that provides a similar type of
default insurance as CMHC, with some variations.
Goods and Services Tax
GST is not charged on the purchase of a resale home
for personal use or for residential rental purposes. The
Canada Revenue Agency (Revenue Canada) defines "used residential
property" to include a previously occupied house, condominium,
apartment, summer cottage, vacation property or non-commercial
hobby farm, that had been occupied as a residence before you
bought it.
Gross Debt Service Ratio
The percentage of gross annual income required to cover
payments associated with housing (mortgage principal and interest,
taxes and secondary financing). Most lenders prefer that the
GDS be no more than 32%.
Guarantor
Is a person who promises to pay for the debt or default
of another. A guarantor is sometimes required where the
lender will not provide mortgage money unless the guarantor
warrants in writing that he or she will pay off the mortgage
loan, if the original borrower defaults.
Home Equity Line of Credit
A mortgage loan, which is usually in a subordinate
position, which allows the borrower to obtain multiple advances
of the loan proceeds at his or her own discretion, up to an
amount that represents a specified percentage of the borrower's
equity in a property.
Home Inspection
A thorough inspection that evaluates the structural
and mechanical condition of a property. A satisfactory home
inspection is often included as a contingency by the purchaser.
Contrast with appraisal.
Improvements on the land
Include the building, fence, trees, and any other permanent
structures that are considered attached to the land and remain
with the land.
Insurance – home
The lender requires the homeowner to protect the property
with homeowner's insurance, and will request proof of coverage
before the closing date of the transaction. For a condominium,
you need to purchase insurance only for the interior of the
unit; the lender may or may not require proof of coverage.
Insurance - mortgage disability
Mortgage disability insurance pays the mortgage installments
if the insured borrower becomes ill or disabled and unable to
work.
Insurance - mortgage life
Mortgage life insurance is a form of term life insurance
that generally pays off the balance owing on the mortgage if
the insured borrower dies.
Insurance - mortgage loan
CMHC is a Canadian government agency providing mortgage
loan insurance, to protect the lender against a borrower's defaulting
on a high-ratio mortgage. The financial institution is obliged
by law to insure a mortgage loan that is over 75%, for which
the borrower has to pay the premium, calculated as a percentage
of the mortgage, which is usually added to the mortgage principal.
Genworth Financial Canada (the new name for GE Canada) is a
private insurer. Also called default insurance.
Interest
Is the cost of borrowing. When buying a home,
it's the amount the lender charges for lending the borrower
money to buy a home. The mortgage interest rate is usually
expressed as an annual percentage rate calculated (compounded)
semiannually. However, a variable-rate mortgage, where
the interest rate fluctuates depending on market interest rates,
is calculated monthly. All things being equal, the more
frequent the compounding (based on the same interest rate),
the more it costs you.
Interest adjustment date
Is the date usually one month before the monthly mortgage
payments begin; when interest on the funds advanced before that
date is calculated and must be paid by the borrower before the
commencement of regular monthly payments.
Interest rate differential penalty
Is a penalty for early prepayment of all or part of
a closed mortgage. Generally, it is based on the difference
between the new interest rate for the remaining term and the
rate for the term in the mortgage contract, multiplied by the
mortgage balance (principal outstanding) and the balance of
the term. Some lenders calculate it differently from above
- ask your lender how it is calculated by their financial institution.
Currently, there is no legislation to protect the borrower in
this regard.
Lenders are not allowed to use the IRD penalty in the following
situations, and the maximum that you have to pay is a 3 months'
interest penalty, based on the last regular payment made:
1) For a CMHC-insured mortgage registered prior to August 1999,
after 3 years of a longer term mortgage, and 2) after 5 years
of any longer term closed mortgage. Some lenders are currently
continuing this practice for all closed mortgages of over 3
years, so, regardless of what your contract states, ask your
lender about their current policy.
Irrevocable
Means it cannot be revoked or changed, unless all relevant
parties agree.
Joint Tenancy
A form of co-ownership that gives each tenant equal
interest and equal rights in the property, including the right
of survivorship.
Land
Includes the land and any permanent structure(s) on
the land.
Land Transfer Tax
Although there is a limited transfer-tax-saving promotion
currently in force for first-time buyers of brand-new homes
in Ontario, the Land Transfer Tax is generally a fee charged
by the provincial government for transferring the property from
the seller to the purchaser, paid at the time of closing by
the buyer
Lease
A written agreement between the property owner and
a tenant that stipulates the conditions under which the tenant
may possess the real estate for a specified period of time and
rent.
Lessee
Is a tenant, leasing the property from the owner.
Lessor
Is the owner (landlord) of the property occupied under
lease by a tenant.
Lien
A legal claim against a property that must be paid
off when the property is sold.
Line of Credit
An agreement by a commercial bank or other financial
institution to extend credit up to a certain amount for a certain
time to a specified borrower.
Listing agreement
Is a contract between the listing broker and the property
owner, authorizing the Realtor to sell or lease a property on
the owner's behalf.
Listing broker
Is the Realtor who signs a contract with an owner to
sell or lease the property.
Loan-to-value ratio
Is the ratio of the loan to the appraised value or
purchase price of the property, whichever is lower, expressed
as a percentage.
Lock-in
A written agreement in which the lender guarantees
a specified interest rate if a mortgage goes to closing within
a set period of time.
Lock-in Period
The time period during which the lender has guaranteed
an interest rate to a borrower.
Maturity date
Is the date on which the loan terminates, at which
time the borrower may pay off the balance or a portion of the
balance without penalty, or renew or increase the loan balance
for another term, or switch to another lender. The maturity
date of your mortgage may not be based on the first payment
date; check the maturity date (renewal date, due date) on your
mortgage document.
Mortgage
Is a contractual loan on the purchase of property,
with the property pledged to the lender as security for the
debt, and the borrower's right to reclaim the property upon
payment of the debt.
Mortgage broker
Is an individual or company that arranges loans for
borrowers through financial institutions and private lenders.
Mortgage brokers must be registered by law. Check if the
broker is registered with the Financial Services Commission
of Ontario, at www.fsco.gov.on.ca,
click on Licensing & Registration, then, under "Who
is Licensed" click on Mortgage Brokers Registered in Ontario,
or you can call the Commission at 416-250-7250 (Toronto) or
toll-free at 1-800-668-0128.
A mortgage broker has access to many lending institutions and
investors and can often get you a lower interest rate than the
lender would give you if you approached the financial institution
personally. Generally,regardless of the amount of the loan,
if the transaction is straightforward and you meet the normal
lending criteria, the broker's service will cost you nothing.
The broker gets paid a fee by the financial institution.
The Mortgage Brokers Act (Ontario) requires mortgage brokers
to provide borrowers with a Statement of Mortgage. The
Statement of Mortgage must be completed by the mortgage broker
and an amortization schedule for the mortgage attached to it,
as well as a Mortgage Commitment from the lender. A copy
of this Statement of Mortgage signed by the broker must be given
to you a few days before you are asked to sign the mortgage
instrument or a commitment to enter into the mortgage.
Mortgagee and mortgagor
The lender (creditor) is the mortgagee and the borrower
(debtor) is the mortgagor.
Mortgage Commitment
Refer to Commitment letter.
Mortgage discharge
Occurs when the mortgage has been fully paid off and
the lender's claim no longer exists and is taken off the property,
and a Discharge of Charge/Mortgage (Mortgage Discharge Certificate)
is issued to the borrower by the lender, which should be registered
on title in the local Land Registry Office either by the borrower
or his/her lawyer, as it confirms that the loan has been paid
in full. The borrower should retain a copy of the Discharge
of Charge/Mortgage permanently.
Mortgage eligibility
Lenders generally look at both GDS and TDS ratios,
and usually select the smaller of the two amounts to calculate
gross (before employee deductions and income tax, but minus
business expenses if self-employed) income available for housing
costs. Gross Debt Service Ratio (GDS), based on monthly
housing expenses (mortgage payment, heating cost, and property
taxes, plus one-half of condominium maintenance fee), should
not exceed 30% of monthly gross family income. Total Debt
Service Ratio (TDS), based on monthly housing expenses plus
other fixed monthly expenses such as car loan, personal loans,
credit card accounts, alimony payments, etc., should not exceed
40%. The percentage maximums may vary slightly among lenders.
Mortgage insurance
refer to Insurance - mortgage loan.
Mortgage pre-approval
Refer to Pre-approved mortgage.
Mortgage prepayment privileges
Give the borrower the right to make payments over and above
the regular payment schedule, with or without penalty, and may
be restricted to specific amounts and times, depending on the
mortgage contract. Because the entire prepayment is applied
to the principal, it pays to prepay, as it greatly reduces
the cost (interest) of the loan over time.
Mortgage term
Is the actual length of time that the money is borrowed.
These terms generally range from six months to ten years.
Multiple Listing Service(MLS)
Is a system that provides information about properties
listed for sale. Most resale properties sold in Canada
are sold through the MLS.
Negative Amortization
A gradual increase in mortgage debt that occurs when
the monthly payment is not large enough to cover the entire
principal and interest due. The amount of the shortfall is added
to the remaining balance to create "negative" amortization.
Notice of Default
A formal written notice to a borrower that a default
has occurred and that legal action may be taken.
Offer or Offer to Purchase
Refer to Agreement of Purchase and Sale
Open mortgage
Is a mortgage loan in which the borrower can repay
the loan, in part or in full, at any time without notice or
penalty, or it can be renegotiated at any time prior to maturity
(end of term) without penalty. There are two types of
fully open mortgages: the open fixed-rate mortgage whose
term is usually no more than a year, and the interest rate is
generally higher than for a closed mortgage for the same term;
and the open variable rate mortgage whose term is usually no
more than two years, and the interest rate varies depending
on market conditions.
Original Principal Balance
The total amount of principal owed on a mortgage before
any payments are made.
Origination Fee
A fee paid to a lender for processing a loan application.
The origination fee is stated in the form of points. One point
is 1 percent of the mortgage amount.
Owner Financing
A property purchase transaction in which the property
seller provides all or part of the financing.
Payment Change Date
The date when a new monthly payment amount takes effect
on an adjustable-rate mortgage (ARM). Generally, the payment
change date occurs in the month immediately after the adjustment
date.
Personal property
Is all property, except land and the improvements (such
as building, fence, and other permanent structures) on the land.
Personal property is movable property, such as chattels.
Portability
Allows borrowers who sell their current home and buy
another one at the same time, to take their mortgage loan balance,
interest rate and remaining term with them to the next home
without penalty, but there will be a cost to discharge the old
mortgage on the property sold and to register the new mortgage
on title on the new property at the local Land Registry Office.
By porting your mortgage, you avoid a prepayment penalty for
breaking your mortgage early; however, there will be legal fees
for preparing the mortgage documentation.
Pre-approved mortgage
Refers to written pre-purchase approval (at no cost)
by the lender, for a specific period of time (120 days), based
on a maximum loan amount and guaranteed interest rate for a
certain mortgage term. It may be subject to a credit check
and proof of steady employment and salary. Never purchase a
home unconditionally, based on a mortgage pre-approval; always
make sure your Offer (Agreement of Purchase and Sale) contains
the "conditional on the purchaser obtaining satisfactory
mortgage financing" clause.
Prepayment penalty
If your mortgage is not fully open, you may be charged
a penalty if you want to pay off all or part of your mortgage
before the end of the fixed term. The normal prepayment
penalty is the greater of 3 months' interest and the Interest
Rate Differential on the amount to be prepaid.
Prime Rate
The interest rate that banks charge to their preferred
customers. Changes in the prime rate influence changes in other
rates, including mortgage interest rates.
Principal
The amount you still owe the lender at any time.
Property assessment
For residential non rental property, it is the estimation
of property value for taxation purposes, based on market conditions
of a previous year. "Market value" is based on the
most probable selling price of a residential property if it
would have been sold by a willing seller to a willing buyer
(not related or associated in any way) - in other words, if
it were sold under normal selling conditions. It affects
the property tax you have to pay.
Property survey
refer to Survey.
Property taxes
Are taxes charged annually (generally, in installments)
by the municipality on property within its jurisdiction.
Often, taxes are added to your mortgage payments and the lender
pays them on your behalf.
Qualifying Ratios
Calculations that are used in determining whether a
borrower can qualify for a mortgage. They consist of two separate
calculations: a housing expense as a percent of income ratio
and total debt obligations as a percent of income ratio. See
Gross Debt Service Ratio.
Quitclaim Deed
A deed that transfers without warranty whatever interest
or title a grantor may have at the time the conveyance is made
Rate (interest)
The return the lender receives for loaning you the
money for the mortgage.
Real property
Is the land, building(s), and all permanent attachments
and improvements to the land, such as a fence, trees, which
are generally considered immovable
Realtor
Is a licensed real estate professional who is a member
of a local real estate board, the Canadian Real Estate Association,
and the Ontario Real Estate Association. A Realtor is
either a real estate broker or a sales representative.
Recission
The cancellation or annulment of a transaction or contract
by the operation of a law or by mutual consent. Borrowers usually
have the option to cancel a refinance transaction within three
business days after it has closed.
Refinancing a mortgage
Is, generally, the arranging of a new mortgage on the
existing property for an increased amount, before the end of
the term; with the existing closed mortgage being paid off/discharged
from the proceeds of the new loan, and usually there is a penalty
charged for breaking the mortgage. You can remain with the same
lender or switch to another lender whose interest rate is lower. Always
obtain a total-payout statement from your lender before refinancing.
The payout statement will guarantee the penalty cost for only
a short period of time, as the 3-month penalty and the IRD penalty
are subject to change over time.
Renewing a mortgage
Once a mortgage reaches the end of the term, it can
be paid off fully or partially without penalty, or renewed with
the same lender for another term of your choice, or by switching
to another lender. If you do not notify your lender prior to
term-end of your intentions, they are entitled to payment in
full.
Resale home
Is generally an existing home that has been or is currently
used as a residence.
Reserve fund
Is money set aside from condominium maintenance fees
to cover future major repair and replacement costs.
Right of First Refusal
A provision in an agreement that requires the owner
of a property to give another party the first opportunity to
purchase or lease the property before he or she offers it for
sale or lease to others.
Roll-over Mortgage
A mortgage loan where the interest rate is established for a
specific term. At the end of this term the mortgage is said
to "roll over" and the borrower and lender may agree
to extend to loan. If satisfactory terms cannot be agreed upon,
the lender is entitled to be repaid in full. In this case, the
borrower may seek alternative financing.
Secondary financing
Refers to second, third, etc. mortgages, secured by
a property, behind the first mortgage.
Second mortgage
Is a second loan on the same property, usually at a
higher interest rate and for a shorter period of time than the
first mortgage; it is also secured by the property. This situation
may occur when the first lender is not willing to provide the
total amount required. It is generally prudent to pay
off the second mortgage as fast as possible. If the borrower
defaults, the property is sold and the first mortgagee gets
repaid before the second mortgagee.
Seller agency
Is a relationship where the brokerage (listing broker)
and all of its salespeople represent the seller.
Selling broker
is the Realtor who actually finds the buyer for the
property.
Semi-monthly Payments
Payments are taken twice a month, usually on the 1st
and the 15th. Payments are one half of the monthly amount. Less
aggressive at attacking principle than a bi-weekly payment method.
Set of Standard Charge Terms
Is a lengthy document that should be given you by the
lender with the Charge/Mortgage of Land (Form 2), when the mortgage
loan has been finalized. The Charge Terms document contains
policies that relate to your mortgage, and a copy of it is registered
with the Land Registrar by the lender.
Survey
Is a professionally prepared document that provides
accurate details about a real property's location, boundaries,
size and legal description, as well as any improvements to the
property including buildings, fence, etc., and it must be dated
and signed by an Ontario Land Surveyor. It confirms the
property's boundaries and helps ensure there are no problems
(called encroachments) like fences in the wrong place or a portion
of your neighbour's home on your land. Before a loan is
made to a borrower, the financial institution requires an accurate
survey of the real property. If the seller of a resale
home does not have a survey acceptable to the lender, the purchaser
usually has to pay for a new survey.
Title
Is legal evidence of ownership of property.
Title insurance
Is an insurance policy providing the lender (and the
home purchaser, in most cases, but check the policy) protection
from some title or property survey related problems that may
arise in the future. Title insurance is not mandatory,
but every lawyer has to inform the buyer about it.
Title Search
A check of the title records to ensure that the seller
is the legal owner of the property and that there are no liens
or other claims outstanding.
Transfer
Is a legal document by which title to property is passed
(conveyed) from one party to another. The transferor transfers
title (ownership) to the transferee. Similar to a deed.
Trust account
Is a separate bank account in which the money is deposited
by the recipient, in trust, on behalf of someone else, or for
some specific purpose. To protect your deposit from being
misused, on the deposit cheque write the words In Trust
after the name of the firm to whom it's payable.
Trustee
A fiduciary who holds or controls property for the
benefit of another.
Underwriting
The process of evaluating a loan application to determine
the risk involved for the lender. Underwriting involves an analysis
of the borrower's creditworthiness and the quality of the property
itself.
Underwriting Fees
A sum of money collected by some lenders to offset
expenses incurred in the lending transaction.
Unsecured Loan
A loan that is not backed by collateral.
Variable-rate mortgage (VRM)
Is a mortgage for which payments are fixed (stay the
same) for a specified term, but the interest rate changes based
on fluctuating market interest rates. If market rates
go up, a larger portion of the payment goes to interest; if
rates go down, a larger portion is applied to the principal.
It is compounded (calculated) monthly, whereas a fixed-ratemortgage
is compounded semi-annually; all things being equal, the more
frequent the compounding, the more it costs you.
Vendor
Is the seller in a real estate transaction. The
word "seller" is used more often.
Vendor Financing (Balance of Sale)
The seller sometimes takes the mortgage at a rate lower
than market rates. Most of these arrangements are neither renewable
nor transferable to the next owner.
Vendor-Take-Back
When the vendor (seller) of a property provides some
or all of the mortgage financing in order to sell the property
Waive
Is to give up a benefit or right voluntarily.
Waiver
Is the intentional (voluntary) giving-up of some right
or interest.
Weekly Accelerated Payments
Same as bi-weekly accelerated. Your payments will be
one quarter of your normal monthly payment. More aggressive
than simple weekly payments as sometimes there are 5
weeks in the month and you will have 5 payments in that month.
This will happen at least 4 times a year.
Zoning regulations
Are strict guidelines set and enforced by municipal
governments, regulating how a property may or may not be used;
for example, if you intend to use the property for business
or commercial purposes, or if you intend to rent out a portion
of the house as a separate apartment making it a 2-unit home,
personally verify with the municipality concerned before presenting
an Offer.
