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GLOSSARY
Mortgage Terms A-L Mortgage Terms M-Z >>
Mortgage Terms A-L Mortgage Terms M-Z >>
A
Abstract of Title – Sometimes referred to as Certificate of Search, This is the document that states instruments and liens registered against the title to a property, like the deed, first and second mortgages, and others.
Adjustable Rate Mortgage(ARM) - A mortgage where the payments change and the interest rate is periodically adjusted based on an index. In the case of Canada Mortgages, the index used is the prime rate.
Agreement of Purchase and Sale - A legal arrangement between the Home Seller and Home Buyer on the terms and conditions on which a home is being purchased.
Amortization - The amount of time over which the mortgage will be paid off when making regular payments. This could be 25 to 35 years depending on the terms of the mortgage.
Appraisal - The inspection and assessment of the property for the process of determining its value. It can also refer to the report itself. This is usually done for lending purposes by licensed and certified appraisers.
Appraisal Value - An appraiser’s estimate or professional opinion of the market value of a property.
Arms Length - A transaction between unrelated Buyer and Seller where both parties are willing and are not compelled or forced to complete the transaction.
Assumable Mortgage – A mortgage condition that allows the buyer to take over (assume) the seller's mortgage on the property without any change in the terms of the original mortgage at the completion of the transaction.
B
Blended Payments – Term used for a mortgage payment that includes both principal and interest, paid on a regular basis during the life of the mortgage. The total regular payment usually does not change, but the principal portion of payment increases, while the interest portion decreases over time.
Bridge Loan - A bridge loan is a temporary second mortgage that is typically used when the sale of the buyer’s current home closes after the purchase of his or her new home closes.
It is normally paid off immediately following the closing date of the buyer’s current home.
C
CMHC – Stands for Canada Mortgage and Housing Corporation, an entity authorized by the National Housing Act of Canada to operate a Mortgage Insurance Fund. Its primary purpose is to protect NHA approved lenders form incurring losses due to borrowers defaulting on their mortgage.
Closed Mortgage - A mortgage agreement that contains restrictions such as that it cannot be refinanced, renegotiated, or prepaid, before maturity other than what it explicitly allows according to its terms.
Closing Costs – Costs other than the down payment and mortgage that are associated with purchasing a home. Eg; legal fees, disbursements, land transfer taxes, and notary fees. It may also include adjustments for prepaid property taxes and/or condominium maintenance or common expenses.
Closing Date - The date on which the sale of a property is completed and the ownership of the home transfers from the seller to the buyer as stated and agreed to by all parties on the Agreement of Purchase and Sale.
Collateral Charge Mortgage – A mortgage where the lender registers the mortgage at up to 125% of the actual value of the home at closing. One advantage is it makes it easier to access your Home equity with no legal fees later, but some disadvantages are that collateral charge mortgages are difficult to transfer to another lender at renewal without refinancing and it’s harder to get a second mortgage if needed.
Conditional Offer - An offer to purchase a property subject to certain conditions. These can include financing, home inspection, or the sale of an existing home. A time limit is usually attached to these conditions wherein they must be satisfied or the contract is null and void.
Conventional Mortgage - Simply put, It is a mortgage is 80% or less of the property’s value. Mortgages with a loan to value greater than 80% are referred to as high-ratio mortgages and must be insured against default with a Mortgage Insurer.
D
Debt Consolidation - The process of combining several debts and payments into one monthly payment.
Deed – A registered document against the title to a property that serves as evidence of the purchaser's ownership of the property. The document is signed by the seller when transferring ownership of the property to the buyer. It is also referred to as Certificate of Ownership.
Default - Failure to pay a debt as agreed.
Deposit - Also called earnest money deposit, It is the sum put up by the purchaser when making an offer to a property. It is held in trust by the either seller's agent, broker, lawyer or notary until the closing of the transaction.
Down Payment - The amount that the buyer initially invests in the purchase of a property. It is the difference between the purchase price and the amount of the mortgage loan.
E
Equity - See Home Equity
Equity Take Out Mortgage(ETO) - A mortgage loan used to convert equity from a property to cash by borrowing against it.
F
Fire Insurance - . A certificate or binder from an insurance company that insures the property against fire damage. Lenders usually require fire insurance at closing before a mortgage is funded.
Firm Offer - An agreement for purchase that either has no conditions or the conditions have been satisfied.
Fixed-Rate Mortgage - A mortgage for wherein the interest rate is fixed for the agreed upon mortgage term.
Foreclosure - A legal recourse for a mortgagor whose mortgagee has defaulted on payments. This may result in the lender eventually obtaining ownership of the property.
G
Gross Debt Service Ratio – Also called GDS, it is the ratio that the lender uses to ascertain mortgage applications. It is the percentage of the borrower's gross income versus the expected monthly payments of principal, interest, taxes, heating, condo maintenance fees and other housing costs. The lender’s acceptable GDS may be 32-39%, depending on your credit score.
Gross Household Income - The total salary, wages, commissions and other assured income by all the mortgage applicants of the household before deductions.
H
HELOC - HELOC stands for Home Equity Line of Credit. It is a loan set up as a line of credit for some maximum draw based on your Home Equity, rather than for a fixed dollar amount.
High Ratio Mortgage – Mortgage that is 81% or more of the purchase price or appraised value of the property. Mortgages with a loan to value greater than 80% are referred to as high-ratio mortgages and must be insured against default with a Mortgage Insurer.
Holdback – Usually used in construction or renovation loans, it is the amount of money required to be withheld by the lender to ensure that construction or renovation is completed at every stage.
Home Equity, or Equity - The difference between the market value of the property and any outstanding liens or mortgages, or claims registered against it.
Home Inspection - The examination of a house by a Home Inspector usually selected by the buyer.
I
Interest Adjustment Date - It is the date in which the interest will begin to accrue on your mortgage before the first payment is made.
Interest Rate Differential Amount (IRD) – Also referred to as the IRD, it is a prepayment penalty that may be applied if you pay off your mortgage principal before the maturity date or pay the principal down more than the allowed prepayment privilege amount. It is equal to the difference between your annual interest rate and the posted interest rate on a mortgage that is closest to the remainder of the term minus any rate discount that you received in the beginning of the term, first multiplied by the amount being pre-paid, and then multiplied amount of time remaining on the term.
J
Job Letter - Also referred to as a Certificate of Employment, it is a letter from your employer confirming your type and length of employment, income, and guaranteed number of hours per week.
L
Lien - A charge or claim registered against a property specifically in an attempt to secure the payment of a liability.
Line of Credit - see HELOC
Loan to Value - The percentage of the amount of the mortgage loan to the appraised value or purchase price of the property.
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