Following is a list of mortgage terms defined. Please
contact us if you have any
further questions.
AGREEMENT FOR SALE
A formal, written document in which the purchaser
agrees to buy certain Real Estate and the seller agrees
to sell under stated conditions and terms. BEWARE
- Title will generally not pass on to you until you
have paid off the whole agreement amount. Consult
a Lawyer if you are offered such a transaction. There
are some situations, where this can be a good deal
for you.
AMENITIES
In a Condominium Project - All aspects of a property
that enhances its value. Reserved parking, nearness
of good public transportation tennis courts, recreation
facilities or swimming pool are a few examples.
AMORTIZATION
The period of time it will take you to pay off your
mortgage. This is usually quoted in years, and usually
25 years. Not to be confused with "Term".
APPRAISAL
An independant evaluation of the property. The Lender
will usually require that you hire an independent
appraiser to estimate the current market value of
the house. The appraiser
has no vested interest in the purchase/sale and as
such can estimate the "fair market value".
ASSESSED VALUE
Value of Real Estate property as determined by a Municipality
for taxation purposes
ASSETS
A list of things of liquid value owned by the applicant/borrower.
These can include cash, term deposits, GIC's, RRSP's,
real estate properties, automobiles, stocks, bonds,
mutual funds, jewelry and other household goods.
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BLANKET MORTGAGE
See inter-alia mortgage
BUY DOWN
The cost of making the effective interest rate lower
than the current market rate. This is usually paid
by the vendor but may also be paid by the borrower.
Example: Say current interest rates are 10% for a
one year term and the vendor wants to make his property
more attractive by offering financing at 7% on a mortgage
of $100,000. for a one year term. The cost to "buy
down" the interest would be approximately $2,700.00.
This would be paid directly to the lender.
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CMHC
Canada Mortgage and Housing Corporation. This is a
Crown Corporation set up under the National Housing
Act (NHA) to insure lenders of high ratio mortgages
against losses in case of default by the borrower.
CMHC MORTGAGE
Mortgage insured by CMHC. See High Ratio Mortgage
CLOSED MORTGAGE
A mortgage that CANNOT be prepaid or repaid in advance
of the maturity date without penalty.
COMMON TENANCY
The ownership of property by two of more persons,
where on the death of one, his share is credited to
his own estate.
COMPLETION
The date where the Real Estate transaction is legally
concluded in the Registry Office. The Purchaser pays
his money on this date and the Vendor receives it.
CONVENTIONAL MORTGAGE
A mortgage where the loan does not exceed 75% of the
value of a house/property. For example a $150,000.
mortgage on a purchase price of $200,000. would be
classified as a Conventional Mortgage.
CONVERTIBLE MORTGAGE
A mortgage where a Borrower has a "window"
of opportunity to renegotiate the term of the mortgage.
This is a very worthwhile feature and should be investigated
for persons wishing to wait a while before committing
to a long term mortgage. The rates for convertible
mortgages are typically 1/2 of 1% less than an "open"
mortgage
CO-COVENANTOR
An individual who contractually undertakes to discharge
the responsibilities of the borrower in the event
of the borrower's default.
COMMON AREAS
Lands or improvements on land that are designated
for common use and enjoyment by all occupants, tenants
or owners. A pool, tennis court, hot tub or common
halls would all be part of the Common Area.
COMPOUNDED
Indicates the frequency with which interest is computed
and added to the principal to arrive at a new actual
balance. The essential point to remember if you are
a borrower is the the less frequent the compounding,
the better deal for you. If you are a Lender (or saver
at the bank) the more often the frequency of compounding,
the more you will get in return. In Canada, Lenders,
generally compound mortgages semi-annually.
CONDO OR CONDOMINIUM
A form of ownership of Real Property. The purchaser
receives title to a particular unit and a proportional
interest in certain common areas (halls, entry, etc).
A condominium generally defines each unit as a separately
owned space to the interior surfaces of the perimiter
walls, floors, and ceilings. Title to the common areas
is in terms of percentage and refers to the entire
project less the separately owned units. Generally
speaking, if you owned a condo in a project of 10
identical units, you would have title to your unit
plus 1/10th of the common areas.
CONVEYANCE
Transfer of Title of real estate property from one
individual to another.
COVENANT
Solemn or written agreement.
COVENANTOR
In a mortgage this means the Borrower
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EASEMENT
A right to the limited use or enjoyment of land. The
Easement is usually held by another and is a registered
interest in land to enable sewer or other municipal
services, power lines, roads or to allow for access
to the property.
ENCROACHMENT
An improvement (building, fence, etc) that illegally
violates another's property.
EQUITY
When speaking of real estate equity, this is defined
as the difference between the value of the property
and the amount of mortgages secured against the property.
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FAIR MARKET VALUE
The price or value at which property is transferred
between a willing and informed buyer and a willing
and informed seller, each of whom has a reasonable
knowledge of all pertinent facts and neither being
under any compulsion to buy or sell.
FIRST TIME HOME BUYERS
Defined by CMHC as one of the buyers who has not owned
Real Estate property in the last 5 years. Different
definition as it applies to BC Purchase Property Tax
Exemption, where one must have NEVER owned a house
anywhere.
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GDS or GDSR
See Gross Debt Service Ratio
GROSS DEBT SERVICE RATIO
GDSR or GDS The measure by which Lenders define the
ability of the borrowers to pay for their mortgage
debt. This is the total mortgage debt service expressed
as a percentage of the borrowers income. This ratio
is calculated by dividing the total of Principal,
Interest, Taxes and a Heating component into the Borrowers
total income. FOR EXAMPLE: Suppose a Borrower has
a total monthly income of $5,000. and suppose the
Principal and Interest component of his mortgage total
$1,200. and that the monthly property tax component
is $100. Also assume an arbitrary heating component
of $50.00 a month for a total of $1,350. Therefore
$5,000. divided by $1,350.00 would give you a GDS
R of 27%. Lenders vary as the maximum they will allow
a borrower's GDS to be. This can range from 27% to
33%. Most of our Lenders will allow 33% and up to
35% for First Time Home Buyers.
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HIGH RATIO MORTGAGE
A mortgage for more than 75% of the value. of the
purchase price or value. These have to be "insured"
by CMHC and a premium is added to the loan. For example
if you had a loan of $100,000. against a purchase
price of $115,000.00, a "premium" of $2,500.00
would be added to the loan. Therefore the Borrowers
would start with an indebtedness of $102,500.00. It
should be pointed out that most all Lenders insure
their High Ratio mortgages this way.
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INTER ALIA MORTGAGE
Also referred to as a Blanket Mortgage. The words
"Inter Alia" are Latin for "Amongst
other things". Therefore an Inter Alia Mortgage
would cover more than one property. Typically it is
a mortgage covering 2 or more properties.
INTEREST
Consideration in the form of money, paid for the use
of money. Usually expressed as a percentage, compounded
semi-annually.
Can also mean a right, share or title in property.
INTEREST RATE DIFFERENTIAL
IRD. Usually refers to compensation due to the Lender
on payout. This is the value of the difference between
the contractual rate of the mortgage and the rate
the Lender can now get for his money. Example: A mortgage
has a term of 3 years to go at 13% and now the Lender
can only get a market rate of 8%. You want to pay
out your mortgage. The Lender may ask you to pay the
difference in interest. This can add up to thousands
of dollars. Payout penalties are usually quoted as
the "greater" of IRD or 3 months interest
penalty. Borrowers not asking about the IRD may be
in for a shock if rates decline considerably.
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JOINT TENANCY
Ownership of Real Property by two or more people.
when one dies, his share automatically passes to the
survivors.
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LIABILITIES
The amount of debts a person owes.
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MORTGAGE BROKER
A firm or more frequently and Individual who brings
the Borrower together. Does the mortgage shopping
for the Borrower. In B.C. the Broker must be licensed.
MORTGAGE INSURANCE COMPANY OF CANADA
See MICC
MORTGAGEE
The Lender in a Mortgage Transaction
MORTGAGOR
The Borrower in a Mortgage Transaction
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NET WORTH
The residual after deducting Assets from Liabilities
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OPEN MORTGAGE
A mortgage that can be prepaid at anytime during the
contract, and before maturity, WITHOUT penalty.
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PREPAYMENT CLAUSE
In a mortgage, an agreement giving the Borrower the
privilege of paying additional sums off the principal
balance over and above the agreed contractual payments.
PRINCIPAL
The amount of debt, exclusive of accrued interest,
remaining on a loan.
PURCHASE PROPERTY TAX
In British Columbia, we have a Purchase Property Tax
which applies to most properties. There are exemptions
for First Time Buyers. Generally, the tax is 1% of
the first $200,000.00 purchase and 1% of the balance.
There are property purchase price limits. Generally,
again, the tax applies on any purchase over $250,000.
(depending on where you are buying).
Because there are so many variables, I have made
this a clickable option for you. If your case is not
covered in there, plase call the Ministry of Finance
and Corporate Relations in Victoria, BC at (604) 387-0604.
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REAL PROPERTY - REAL ESTATE PROPERTY
Land and appurtenances, including anything of a permanent
nature such as structures, trees, minerals and the
interest, benefits and inherent rights thereof. Sometimes
called Real Estate.
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STRATA FEES
Monthly levies by the corporation owning the Condominium
for the maintenance of common areas, cleaning, reserves
for repairs to major common areas like the roof, etc.
SURVEY
A formal report by a qualified Land Surveyor on the
mathematical boundaries of land, showing land of buildings,
physical features and quantity of land.
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TDS or TDSR
See Total Debt Service Ratio
TERM
The amount of time that the contract is written for
and that the interest rate is guaranteed for. Not
to be confused with "Amortization". Typically
in Canada terms range from 1 to 5 years.
TOTAL DEBT SERVICE RATIO
TDSR or TDS. Add all other debt payments to the GDSR
and measure as a percentage of the total income of
the Borrower. Suppose in the Example of the GDSR above
the Borrower had a monthly car payment of $300.00
on top of his PITH (principal, interest, taxes, heat)
for a total monthly obligation of $1,650.00 This represents
33% of the Borrowers total income. Lender will usually
allow up to 40 or 42% maximum TDS
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VENDOR
The Seller
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