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Key Terms

A B C D E F G H I J L M O P R T U V

A
Amortization	Total amount of time it will take to pay off a mortgage. In Canada the maximum amortization one can choose is 35 years.
Assignment	Transferring the right, title or interest of a property to another individual/corporation.
Assumption	Occurs when a buyer purchases a property and assumes the sellers mortgage. This is attractive to do when current mortgage are higher than the sellers.
Assignment	Transferring the right, title or interest of a property to another individual/corporation.

B
Bad Debt	Debt which is delinquent and has been written off as uncollectible.
Bankruptcy	When an individual is in a financial state of not being able to honour their credit obligations. A legal proceeding takes place where the debtor will be discharged of certain liabilities.
Bungalow	Is a single story home (on occasion one and a half stories) that varies in size.

C
Cash Flow	In real estate, cash flow involves the inflow of cash from rental income minus borrowing costs, property taxes and various other expenses (i.e. management fees). A property is considered “cash flow positive” when total rental income exceeds expenses.
Chattel Mortgage	When someone purchases a movable personal property (chattel) and finances it. An example of this would be the purchase of a boathouse.
Closed Mortgage	A type of mortgage where repayment and refinancing prior to maturity involves paying a penalty. Almost all closed mortgages have a fixed interest rate and payment amount defined over the term. At the end of the term you are required to renegotiate the terms of the mortgage with your lender.
Closing Costs	Costs incurred with the transfer of property, such as legal fees and taxes. Typically closing costs amount to 2 - 3 % of the purchase price.
Closing Date	The date when the sale of a property is considered final and funds exchange.
Collateral	Something of value used to secure financing. In case of default of payment, financing companies have the right to seize the pledged property.
Comparables	A term used in an appraisal referring to properties with characteristics similar to the property value being estimated.
Conditions	Clauses stated on the Purchase and Sale Agreement specifying certain commitments that must be met for the sale to be valid. The most common conditions are: financing, inspection, legal review and approval of condominium minutes.
Conventional Mortgage	When an individual provides a minimum down payment of 20%, it is referred to as a conventional mortgage. It’s important to differentiate between mortgage types because those that do not exceed 80% loan to value are not subject to the cost of default insurance (provided by CMHC and Genworth).
Counter-Offer	While negotiating, a party may amend the Purchase and Sale Agreement and sign it back for acceptance by the other party. For example, the seller may reject an offer by the potential buyer however make a counter-offer specifying a new asking price that must be accepted by 12pm March 18, 2009.
Credit Bureau	A report which summarizes an individual’s dealings with their creditors. A score is often provided based on the individuals credit dealings referred to as the beacon score (higher the better).
Counter-Offer	While negotiating, a party may amend the Purchase and Sale Agreement and sign it back for acceptance by the other party. For example, the seller may reject an offer by the potential buyer however make a counter-offer specifying a new asking price that must be accepted by 12pm March 18, 2009.
Credit Bureau	A report which summarizes an individual’s dealings with their creditors. A score is often provided based on the individuals credit dealings referred to as the beacon score (higher the better).

D
Debt to Value Ratio	The ratio between the amounts of debt secured against a property divided by the value of the property.
Deed	A document used to transfer ownership in land from one party to another.
Default	The failure to fulfill an obligation or promise to pay.
Deposit	A portion of the down payment that is used to provide assurance to the seller that the buyer will follow through with the commitment to purchase. These funds will be held in trust by the lawyer/notary until the sale is closed, at which time it is paid to the seller.
Detached House	a type of house where the structure does not share a wall with another.
Due Diligence	In the case of real estate, it is the act of investigating an opportunity with a certain standard of care. Examples of this would be to conduct an inspection, appraisal and read strata minutes.

E
Encumbrances	A term for anything that affects or limits the title of a property such as a mortgage lease, easement and liens.
Estoppel Certificate	A document which states the condominiums financial and legal status along with each unit’s payment obligations and whether or not there are any arrears.
Equity	The difference between the value of the property and the amount of debt secured against it.
Equity Financing	A term used by bankers where the financing of a property is based more upon the loan to value rather than the serviceability of the debt (income of applicant less important).

F
Fixed Rate Mortgage	A mortgage where the interest rate is constant (does not fluctuate) for a specified term. At the end of the term the applicant will need to renegotiate new terms.
Foreclosure	A legal proceeding where the lender obtains a court order to repossess a property due to payments being in arrears. Once approved by the courts the lender will sell the place to cover all debts owing.
Free and Clear Title	Where the title to a property is absolutely free and clear of liens, mortgages and any other encumbrances.

G
Genworth	An organization that provides banks/lenders with mortgage insurance (not to be confused with life and disability insurance) in case of default. It is a requirement that all mortgages which exceed a loan to value of 80% in Canada must have default insurance. The two providers of default insurance in Canada are Genworth and CMHC.
Gross Debt Service Ratio	This ratio is used to assess an individual’s ability to service debt. It’s calculated by using an individual’s gross monthly income and dividing it by housing costs: monthly mortgage payment, property taxes, heating costs and condominium/strata fees (if applicable). Banks typically do not like to see these costs represent anything higher than 32% of your monthly gross income.
Gross Income	Annual income before taxes and any other deductions taken into consideration. For example your salary maybe $40,000 a year however your take home pay after deductions is usually much less.
Guarantor	A person who promises to be responsible for the repayment of a loan is case the primary applicant is unable to do so. Lenders sometimes ask for a guarantor if an individual has bad credit or low income.

H
Half-bathroom	A bathroom that contains only a toilet and sink.
High Ratio Mortgage	When an individual has a down payment less than 20% of the purchase price there mortgage is consider a high ration mortgage. This scenario will require lenders to obtain default insurance. Such a cost will be passed onto the mortgage applicant.
Home Buyers Plan	A program developed by the Canadian government to allow individuals to pull out $20,000 from their RRSP’s, tax free. If someone exercises this option they must pay back the amount over 15 years beginning the second year after the withdrawal.
Home Equity Line of Credit	A revolving credit facility that is secured against the equity of the home. Most financial institutions in Canada will lend up to 80% of the value in the home (subject to credit review). This lending product allows individuals to draw and repay within their limit as much as they want. Most home equity lines of credits have a repayment term of interest only.
Home Inspection	Conducting an inspection is a common condition when purchasing a new property. An inspection involves having a professional come in and look at major systems of the home for the purpose of identifying needed repairs, replacements and structural defects.

I
Interest	The cost of borrowing for a given amount. In mortgage documents, the interest rate is quoted as an annual rate.

J
Joint Liability	When two or more people are responsible for repaying a debt.

L
Land Title	A document which outlines the legal property description, encumbrances and who the registered owner is.
Land Transfer Tax	A provincial tax payable when a property changes ownership.
Leasehold	Is where one has the right to occupy land or a building for a given length of time. Until the end of the lease period the leaseholder has the right to occupy as a tenant paying an agreed rent to the owner. Leaseholds are common on First Nations and Crown land.
Loan to Value	The amount of debt secured against a property divided by the appraised value.

M
Mortgage	A mortgage is a debt facility secured against a property in which you own. When a mortgage is issued, repayment terms are clearly defined in documentation. Mortgage payments include both principal and interest.
Mortgagee	The Lender.
Mortgagor	The borrower.
Mortgage Default Insurance	An insurance premium added to mortgages when a down payment is less than 20% of the purchase price.

O
Offer to Purchase (also known as a Purchase and Sale Agreement)	A legal document setting out conditions to purchase a home. Once the offer has been accepted and the conditions have been satisfied, it becomes a legally binding contract to purchase.
Open Mortgage	A type of mortgage that allows for repayment of part or the entire amount at anytime without a penalty.

P
Portable Mortgage	A borrower can transfer the terms, conditions and interest rate of their mortgage to another property (i.e. when they sell their home and purchase a new one).
Pre-approved Mortgage	A mortgage guarantee that a party will receive a specific rate for a given mortgage term. Often the rate will be held for 90 - 120 days (every bank has its own rules). The pre-approved mortgage will also give you a financing amount that you will qualify for. However it should be noted that just because you may be qualified for a mortgage of $300,000 it does not mean that the property you are purchasing will qualify for that amount of financing. We strongly recommend that you always put subject to financing as a condition.
Prepayments	Non-scheduled payments made to the principal mortgage balance, with or without a penalty prior.
Property Survey	A document which shows appears like a map of property which shows the size of the lot. It also includes a written description of the property which discusses such things as right-of-ways, border lines, fences, trees and other such objects. Having this information allows one to address issues such as encroachments, flood zones etc.

R
Replacement Cost	The expense incurred to rebuild an equivalent property.

T
Tenancy Agreement	Contract between a landlord and tenant outlining the terms and conditions specific to the rental of a property.
Term	An agreed upon period of time where an interest rate and payment amount are set. At the end of the term if there is an outstanding balance the borrower needs to renegotiate a new term with the lender.
Total Debt Service Ratio	The total of your gross monthly income needed to cover payments for housing costs, including mortgage payments, taxes, heating costs, condo fees and all other debt obligations such as loans and credit cards. The total amount of obligations should not be more than 40% of gross monthly income.
Trigger Rate	A rate imbedded in a variable rate mortgage where if the rate of interest increases to the trigger rate, the payment will no longer cover the principal (will only cover interest). If the rate of interest reaches the trigger rate, your lender will likely have you increase the mortgage payment.

U
Upzoning	The practice of changing the zoning in an area from one to another (such as residential to commercial). Usually involves increasing the density and congestion in an area.

V
Variable Rate Mortgagee	The monthly payment remains the same throughout the term but the amount applied towards the principal versus interest may change with fluctuations in the prime rate. As a result, the amortization may increase if rates rise or shorter if rates fall from the start of the term.