Financial Glossary

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 If the Offer is not accepted or not counter-offered by the seller within a specific period, it is considered void (no longer valid).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, atwww.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 Trustafter 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.