Terminology

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Select the first letter of the word from the list above to jump to appropriate section of the glossary.

- A -

accelerated weekly or bi-weekly payments

Payments are calculated so you make the equivalent of 13 monthly payments per year, rather than 12 monthly payments.  This results in a large interest saving over the amortization period of your mortgage, and you'll be mortgage-free sooner.

 

acceleration

The right of the mortgagee (lender) to demand the immediate repayment of the mortgage loan balance upon the default of the mortgagor (borrower), or by using the right vested in the Due-on-Sale Clause.

abstract

A written history of the title to a parcel of real estate as recorded in a land registry office.

 

adjustable rate mortgage (ARM)

Is a mortgage in which the interest rate is adjusted periodically based on a pre-selected index.  Also sometimes known as the renegotiated rate mortgage, the variable rate mortgage or the Canadian rollover mortgage.

 

adjustment interval

 

On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, typically one, three or five years, depending on the index.

 

agency

 

The relationship between an individual and sales person which arises out of a contract (written or oral) in which a sales person is employed to represent him in business transactions with a third party.

 

agreement for sale

 

A contract by which one party agrees to sell and another agrees to purchase.

 

amortization

 

Means loan payment by equal periodic payment calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.

amortization period

The actual number of years it will take to repay a mortgage loan in full.   This can be well in excess of the loan's terms.  For example, mortgages often have five year terms but have 25 year amortization periods.

 

annual payments

Usually between 10% and 15% of the principal amount can be applied directly to the principal.  The percentage under this privilege will vary from one institution to the other.

 

annual percentage rate (APR)

 

Is an interest rate reflecting the cost of a mortgage as a yearly rate.  This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account point and other credit costs.  The APR allows home buyers to compare different types of mortgages based on the annual cost for each loan.

 

appraisal

 

The act or process of estimating value.

appraised value

The estimate of the value of the property offered as security for a mortgage loan.   This appraisal is done for the mortgage lending purposes and may be less than the purchase price of the property.

 

approved lender

A lending institution authorized by the Government of Canada through CMHC to make loans under the terms of the National Housing Act.  Only Approved Lenders can negotiate mortgages which require mortgage loan insurance.

 

APR (annual percentage rate)

Is an interest rate reflecting the cost of a mortgage as a yearly rate.  This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account point and other credit costs.  The APR allows home buyers to compare different types of mortgages based on the annual cost for each loan.

 

ARM (adjustable rate mortgage)

Is a mortgage in which the interest rate is adjusted periodically based on a pre-selected index.  Also sometimes known as the renegotiated rate mortgage, the variable rate mortgage or the Canadian rollover mortgage.

 

asking (list) price

The price placed on the property for sale by the seller.

assessed value

 

A valuation placed upon the property as a basis for municipal taxation.

 

assumption agreement

A legal document signed by a home buyer that requires the buyer to assume responsibility for the obligations of a mortgage by the builder or the original owner.

 

assumption of mortgage

 

The taking of title to property by an individual where he or she assumes liability for an existing mortgage against a property and they become personally liable for the payment of such mortgage debt.

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- B -

balance due on completion

The amount of money the purchaser will be required to pay to the seller to complete the purchase, after all adjustments have been made.

blended payments

Payments consisting of principal and interest components, paid during the amortization period of a mortgage. The payment total remains the same, although the principal portion increases over time and the interest portion decreases.

borrower (mortgagor)

One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.

broker

1. An individual in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money himself.  Brokers usually charge a fee or receive a commission for their services. 

 

2. A person licensed by the provincial or territorial government to trade in real estate.  Real estate brokers may form companies or offices which appoint sales representatives to provide services to the seller or buyer, or they may provide the same services themselves.  In parts of Canada, brokers are referred to as agents.

building permit

A certificate that must be obtained from the municipality by the property owner or contractor before a building can be erected or repaired.  It must be posted in a conspicuous place until the job is completed and passed as satisfactory by a municipal building inspector.

 

buyer's agent (buyer's broker or purchaser's agent)

A person or firm representing the buyer.  A buyer's agent's primary allegiance is to the buyer.  The buyer is the buyer agent's client.

buyer's broker

A person or firm representing the buyer.  A buyer's agent's primary allegiance is to the buyer.  The buyer is the buyer agent's client.

 

buyer brokerage agreement

A written agreement between the buyer and the buyer's agent, outlining the agency relationship between the two parties and the manner in which the buyer's agent will be compensated.  In some provinces, a buyer agency relationship arises automatically, without a written agreement establishing the relationship.

 

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- C -

Canada Mortgage and Housing Corporation (CMHC)

The Corporation of the Federal Government which administers the National Housing Act (NHA) and provides mortgage insurance to lenders.

cash flow

The amount of cash derived over a certain period of time from an income-producing property.  The cash flow should be large enough to pay the expenses of the income producing property (mortgage payment, maintenance, utilities, etc.)

caveat emptor

A Latin expression meaning "Let the buyer beware".  The buyer must examine the goods or property he or she is buying and he or she therefore, buys at his or her own risk.

chattel

Personal property which is tangible and movable.

client

The person being represented by an agent.  The agent owes the client the duties of utmost care, integrity, confidentiality and loyalty.

 

closed  mortgage

A closed mortgage agreement does not provide for payout prior to maturity.   A lender may permit payout under certain circumstances but will levy a penalty charge for doing so if such exceeds certain limits, if any, specified in the mortgage (i.e. 15% prepayment provision). 

closing

The meeting between the buyer, seller and lender or their agents where the property and funds legally change hands.  Also called settlement.  Closing costs usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement.  The cost of closing usually are about 3 percent to 6 percent of the mortgage amount.  Commitment an agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the completion of paperwork or compliance with stated conditions.

closing costs

Costs, in addition to the purchase price of the home, such as legal fees, transfer fees and disbursements, that are payable on the closing date.  Closing costs typically range from 1,5%-4% of a home's selling price.

 

closing date

The date on which the sale of the property becomes final and the new owner takes possession.

CMHC (Canada Mortgage and Housing Corporation)

Canada Mortgage and Housing Corporation.  A Crown corporation providing information services and mortgage loan insurance.

 

collateral mortgage

A mortgage which secures a loan by way of a promissory note.  The money which is borrowed can be used to buy a property or for another purpose such as home renovation or for a vacation.

 

commission

Monies paid to a Real Estate Agent upon the sale or lease of property, usually as a percentage of the amount involved.

commitment

A promise by a lender to make a loan on specific terms or conditions to a borrower or builder.  A promise by an investor to purchase mortgages from a lender with specific terms or conditions. 

conditional offer / conditions of sale

An offer to purchase that is subject to specified conditions, for example, the arranging of a mortgage.  There is usually a stipulated time limit within which the specified conditions must be met.

 

condominium

A form of ownership in which the owner has title to a dwelling unit and also owns a share of the common elements ( such as elevators, hallways and the land).

construction loan (interim loan)

A loan to provide the funds necessary to pay for the construction of buildings or homes.  These are usually designed to provide disbursements to the builder as he progresses.

contract sale or deed

A contract between purchaser and a seller of real estate to convey title after certain conditions have been met.  It is a form of installment sale.

contract

A contract is a legally binding agreement between two or more capable people.   The agreement says that in return for a lawful and genuinely intended act, a certain value will be placed.  The contract must be in writing.

covenant

An agreement contained in a deed and creating an obligation.  It may be positive, stipulating the performance of some act or it may be negative or restrictive, forbidding other acts.

conventional mortgage

A mortgage loan which does not exceed 75% of the lesser of the appraised value or the purchase price of the property.  A mortgage that exceeds that limit must be insured under the practices of most major financial institutions.

covenant

A clause in a legal document which, in the case of a mortgage, gives the parties to the mortgage a right or an obligation.  For example, a covenant can impose the obligation on a borrower to make mortgage payments in certain amounts on certain dates.  A mortgage document consists of covenants agreed to by the borrower and the lender.

 

CREA

The Canadian Real Estate Association.  A national association representing the real estate industry on federal public policy matters, providing member services and education.  CREA promotes adherence to a strict Code of Ethics and Standards of Business Practice.

 

creditor

A person to whom a debt is owed by another person usually called a debtor.

customer

A person who received valuable information and assistance from a real estate broker or salesperson, but is not represented by that individual.

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- D -

date of completion

The date specified in the agreement of purchase and sale, when the purchaser is to deliver the balance of money due and the seller delivers a duly executed deed and vacant possession of the property.

debt service ratios (GDSR & TDSR)

The Gross Debt Service Ratio (GDSR) is the percentage of gross annual income required to cover payments associated with housing (mortgage principal and interest, taxes, secondary financing, heating, and 50% of condominium fees, if any).   The GDSR should not exceed 32% of gross annual income.  The Total Debt Service Ratio (TDSR) is the percentage of gross annual income required to cover payments on a car loan.  The TDSR ratio should not exceed 40% of gross income.  For self-employed / commission sales applicants, net income is used for GDSR and TDSR ratio calculations.

deed

A document in writing, duly executed and delivered, that conveys title or an interest in real property.

deed tax

A fee paid to the municipal and / or provincial government for the transferring or property from seller to buyer.

 

default

Failure to abide by the terms of a mortgage loan agreement.  A failure to make mortgage payments (defaulting on the loan) may give cause to the mortgage holder to take legal action to possess (foreclose) the mortgaged property.

 

delinquency

Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.

deposit

The payment of money or other valuable consideration as pledge for fulfillment of the contract.

discharge of mortgage

A document signed by the lender and given to the borrower when a mortgage loan has been repaid in full.

 

down payment

Money paid to make up the difference between the purchase price and the mortgage amount.  Down payments usually are 10 percent to 20 percent of the sales price on conventional.

dual agent

A real estate broker or salesperson who acts as agent for both the seller and the buyer in the same transaction.  Both buyer and seller are the agent's clients.

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- E -

easement

A right acquired for access to or over, or for use of, another person's land for a specific purpose, such as a driveway or public utilities.

 

encumbrance

A registered claim for debt against a property, such as a mortgage.

 

equity

The difference between the fair market value and the current indebtedness, also referred to as the owner's interest.

escrow

Refers to a neutral third party who carries out the instruction of both the buyer and seller to handle all the paperwork of the settlement or closing.  Escrow may also refer to an account held by the lender into which the home buyer pays for tax or insurance payments.

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- F -

financial institutions

Banks, credit unions, insurance or trust companies.

 

fixed rate and variable rate mortgages

A fixed rate mortgage is one for which the rate of interest is fixed for a specific period of time (the term).  A variable rate mortgage is one for which the rate of interest changes as money market conditions change, usually not more than once a month.  the monthly payment stays the same for a specified period.  However, the amount applied towards the principal changes according to the change (if any) in the rate of interest.

foreclosure

A legal procedure in which property securing debt is sold by the lender to pay the defaulting borrower's debt.

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- G -

GDSR (gross debt service ration)

Gross debt service divided by household income.  A rule of thumb is that GDS should not exceed 30%.  It is also referred to as PIT (Principal, Interest and Taxes) over income.  Sometimes energy costs are added to the formula, producing PITE, which moves the rule of thumb GDS to 32%.

 

GE Capital Mortgage Insurance Company

GE Capital Mortgage Insurance Company is the only private sector source of mortgage insurance to lenders in Canada.

 

gross debt service

The amount of money needed to pay principal, interest, taxes and sometimes, energy costs.  If the dwelling unit is a condominium, all or a portion of common fees are included, depending on what expenses are covered.

 

gross debt service ration (GDSR)

Gross debt service divided by household income.  A rule of thumb is that GDS should not exceed 30%.  It is also referred to as PIT (Principal, Interest and Taxes) over income.  Sometimes energy costs are added to the formula, producing PITE, which moves the rule of thumb GDS to 32%.

 

guaranty

A promise by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.

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- H -

high ratio mortgage

A mortgage loan which exceeds 75% of the lesser of the appraised value or purchase price of the property.  This mortgage must be insured and borrowers must pay an application fee and the insurance premium (which may be added to the mortgage) to the insurer.

holdback

An amount of money withheld by the lender during the progress of construction of a house to ensure that construction is satisfactory at every stage.  A standard holdback amount is 10% of the total cost of the building project.

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- I -

IAD (interest adjustment date)

A date, usually one month before monthly mortgage payments begin, when interest on monies advances before that date is calculated and must be paid by the borrower.

 

increase regular payments

Payments will be applied directly to your principal.  The percentage under this privilege will vary from one institution to the other.

 

interest

The cost of borrowing money.  Interest is usually paid to the lender in installments along with repayment of the principal loan amount.

 

interest adjustment date (IAD)

A date, usually one month before monthly mortgage payments begin, when interest on monies advances before that date is calculated and must be paid by the borrower.

interest rate

The value charged by the lender for the use of the lender's money.   Expressed as a percentage.

 

interest rate increase protection

The interest rate on your mortgage will be lesser of the rate at application or on a set day before closing.  the rate is guaranteed for 90 days (depends on the institution) or until closing, whichever comes first.  If rates increase, you're protected.  If rates decrease, you'll receive the lower rate.

 

interim loan

A loan to provide the funds necessary to pay for the construction of buildings or homes.  These are usually designed to provide disbursements to the builder as he progresses.

 

intestate

A person who dies without a will or leaves one which is defective in form.

investor

A money source for a lender

interim financing

A construction loan made during completion of a building or a project.  A permanent loan usually replaces this loan after completion.

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- J -

Nothing at this time

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- K -

Nothing at this time

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- L -

land transfer tax (deed tax or property purchase tax)

A fee paid to the municipal and / or provincial government for the transferring or property from seller to buyer.

 

lease

A contract between landlord and tenant for the occupation or use of the landlord's property by the tenant for a specified time and for a specified consideration.

leasehold mortgage

A mortgage loan on a home where the building is on land which is leased (rented).  The lender takes an interest in the lease.

lending value

The purchase price or market value of a property, whichever is less.

 

lien

A right, given to a creditor and creating an interest in the real property until debt is discharged.  A lien may be filed by a supplier or a subcontractor who has provided labour or materials but has not been paid.  It has a limited life, prescribed by statute that varies from province to province.  If the lienholder takes action within the prescribed time, the homeowner may be obliged to pay the amount claimed by the lienholder.  Alternatively, the lienholder may force a sale of the property to pay off the debt.

list price

The price placed on the property for sale by the seller.

 

listing agreement

An oral or written agreement between a property owner and a broker authorizing the broker to offer the owner's real property for sale or lease.  It details the services to be rendered, describes the property for sale and states the terms of payment.  A commission is generally payable to the broker upon closing.

loan-to-value ration

The ratio of the loan to the appraised value or purchase price of the property, whichever is less, expressed as a percentage.

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- M -

maturity date

The last date of the term of the mortgage agreement.  The mortgage agreement must then be renewed or the mortgage balance paid in full.

market value

The highest price that a buyer would pay and the lowest price a seller would accept on a property.  Market value may be different from the price a property could actually be sold for at a given time.

MLS®, Multiple Listing Service®

Trademarks owned by The Canadian Real Estate Association.  They are used in conjunction with a real estate database service, operated by local real estate boards, under which properties may be listed, purchased or sold.

 

MLS® Online™

Carries MLS® property advertisements and consumer-related information supplied by individual real estate boards and associations across Canada.

 

mortgage

The conveyance of property to a creditor as security for payment of a debt, with a right of redemption upon payment of the debt.

 

mortgage broker

A person or company having contacts with financial institutions or individuals wishing to invest in mortgages.  The mortgagor pays the broker a fee for arranging the mortgage.  Appraisal and legal services may or may not be included in the fee.

 

mortgage insurance

Money paid to insure the mortgage when the down payment is less than 20 percent.

mortgage insurer

In Canada, high-ratio mortgages (those representing greater than 75% of the property value) must be insured against default by either CMHC or private insurers.   The borrower must arrange and pay for the insurance, which protects the lender against default.

 

mortgage life insurance

Pays off the mortgage if the borrower dies.

 

mortgage payment

A regularly scheduled payment that is blended to include both principal and interest.

 

mortgagee

The one to whom the property is conveyed as security for the payment of a debt; i.e. the lender or creditor.

mortgagor

The one who makes the mortgage; i.e., the borrower or debtor.

multiple listing

An arrangement among brokers, usually real estate board members, whereby each broker presents his listings to the other members, who may negotiate the transactions.

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- N -

national housing act (NHA) loan

A mortgage loan which is insured by the CMHC.

net worth

Your total financial worth, calculated by subtracting your total liabilities from your total assets.

NHA (national housing act) loan

A mortgage loan which is insured by the CMHC.

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- O -

offer to purchase

A formal, legal agreement which offers a certain price for a specified real property.  The offer may be firm (no conditions attached) or conditional (certain conditions must be fulfilled).

open mortgage

An open mortgage allows prepayment / repayment at any time without penalty.

option agreement

A document stipulating that, in exchange for a deposit, a specified individual is to be given the first chance of buying a property at or within a specified period of time.

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- P -

permanent loan

A long term mortgage, usually ten years or more.  Also called an "end loan".

PIT

Principal, interest and taxes - payments due on a regular basis under the terms of the mortgage agreement.  Generally, payments are made monthly and include one-twelfth of the estimated annual municipal and school taxes.  Since these taxes change from year to year, this section of the mortgage will change accordingly.

 

PITH

Principal, interest, taxes and heating - costs used to calculate the Gross Debt Service ration (GDS).

 

PITI

Principal, Interest, Taxes and Insurance.  Also called monthly housing expense.

portability

A mortgage option that enables borrowers to take their current mortgage with them to another property, without penalty.

 

power of attorney

Delegated written authority to a person allowing that person to act on behalf of another.

pre-approved mortgage

Qualifies you for a mortgage before you start shopping.  You know exactly how much you can spend and are free to make a "firm" offer when you find the right home.

 

prepaid expenses

Necessary to create an escrow account or to adjust the seller's existing escrow account.  Can include taxes, hazard insurance, private mortgage insurance and special assessments.

prepayment

A privilege in a mortgage permitting the borrower to make payments in advance of their due date.

prepayment penalty

Money charged for an early repayment of debt. 

principal

The employer of a sales representative or broker, who gives the sales representative or broker authority to do some act for him or her.  In real estate, usually the owner of the property.

property purchase tax

A fee paid to the municipal and / or provincial government for the transferring or property from seller to buyer.

purchaser's agent

A person or firm representing the buyer.  A buyer's agent's primary allegiance is to the buyer.  The buyer is the buyer agent's client.

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- Q -

Nothing at this time

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- R -

real estate board

A non-profit organization representing local real estate brokers / agents, salespeople, which provides services to its members and maintains and operates a MLS® system in the community.

 

real estate broker

A person who represents a principal or owner in a real estate trade.

realtor

A registered word that may only be used by an active member of a real estate board affiliated with the Canadian Real Estate Association.

refinance

Obtaining a new mortgage loan on a property already owned.  Often to replace existing loans on the property.  The old mortgage is paid off (discharged) from the proceeds of the new loan.  This type of loan is also referred to as "equity take out".

renew

To extend a mortgage agreement with the same lender for another term.  The length of the term and the conditions (such as the rate of interest) may be charged.

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- S -

salesperson

An employee of a broker authorized to trade in real estate.

second mortgage

A mortgage made subsequent to another mortgage and subordinate to the first one.

seller's agent

The seller's agent represents the seller - either as a listing agent under the listing agreement with the seller or by cooperating as a sub-agent, typically through the MLS® system.  In dealing with prospective buyers - customers - the seller's agent can provide a variety of information and services to assist the buyer in his / her decision-making.  The seller's agent does not represent the buyer.

 

statement of adjustment

A balance sheet statement that indicates credits to the vendor, such as the purchase price and any prepaid taxes, and credits to the buyer, such as the deposit and the balance due on closing.

 

survey

A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions, and the location and dimensions of any buildings.

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- T -

TDS (total debt ratio)

The percentage of gross monthly income required to cover all monthly payments for housing and all other debts, such as car payments

 

term

The length of time which a mortgage agreement covers.  Payments made may not fully repay the outstanding principal by the end of the term, because the amortization period is longer.

title

A document that gives evidence of an individual's ownership of property.

title search

An examination of municipal records to determine the legal ownership of property.   Usually is performed by a title company.

total debt service ration (TDS)

The percentage of gross monthly income required to cover all monthly payments for housing and all other debts, such as car payments

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- U -

Nothing at this time

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- V -

variable rate mortgage (VRM)

A mortgage in which payments are fixed, but the interest rate moves in response to trends.  If your interest rate goes up, a larger portion of your payment goes to the interest; if rates go down, more goes to cover the principal.

vendor take-back mortgage

When the seller provides some or all of the mortgage financing in order to sell their property.

 

verification of deposit (VOD)

A document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts.

verification of employment (VOE)

A document signed by the borrower's employer verifying his/her position and salary.

VOD (verification of deposit)

A document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts.

 

VOE (verification of employment)

A document signed by the borrower's employer verifying his/her position and salary.

 

VRM (variable rate mortgage)

A mortgage in which payments are fixed, but the interest rate moves in response to trends.  If your interest rate goes up, a larger portion of your payment goes to the interest; if rates go down, more goes to cover the principal.

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- W -

Nothing at this time

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- X -

Nothing at this time

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- Y -

Nothing at this time

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- Z -

zoning bylaws

Municipal or regional laws that specify or restrict land use.

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