A clause in the mortgage document that accelerates the maturity date of the mortgage; the clause states that upon default, the principal sum of the mortgage and accrued interest is due.
Interest that has accumulated unpaid since the last payment date.
Interest amount that is added to the principal of a debt and made payable as part of the debt, usually in equal periodic installments.
Adjustable Rate Mortgage (ARM)
A mortgage where the interest rate is adjusted periodically according to movements in a pre-selected index such as the Bank of Canada Prime Rate.
Adjustments on Closing
Two types of adjustments that a buyer can be charged on closing are:
- prepaid services, where the sellers have prepaid property taxes or certain utilities (the buyers can be charged for the amount of prepayment on a pro-rata basis depending on the date of occupancy), and
- interest, where the amount of interest required to be prepaid up to the interest adjustment date (the interest adjustment date is the date where the mortgage interest starts accumulating “in arrears”.
A statement of declaration in writing and sworn or affirmed before an authorized individual.
A relationship which arises out of a contract where an agent is authorized by a principal to engage in certain acts, e.g. dealing with one or more third parties.
This type of law defines the underlying working relationship in real estate. Note that this is not legislation or a statute; agency law is common law or case law based on accumulated judgements from court cases.
An individual or corporation licensed by the provincial government to trade in real estate.
Agreement Of Purchase And Sale
A written contract to buy property in which the purchaser and vendor agree to sell upon terms and conditions set forth in the agreement.
The paying down of the principal balance of the mortgage by equal periodic payments (and occasional extra payments) of principal at regular intervals over a target period of time (typically 25 years).
Amortization of a Mortgage
The gradual retirement of a mortgage by periodic payments of the principal.
The period of time required to retire a mortgage through periodic payments the principal.
An estimate of the current value of the ‘subject property’ for the lender using (1) a market value comparison approach, which comparing recent sales of similar properties and adding and subtracting the differences in value of the same features in the subject property, or (2) the “depreciated cost” approach, whereby the land value is estimated and added to an estimate of the depreciated building value.
An estimate of property value written by a qualified individual – usually for for mortgage lending purposes (note that an appraisal may not reflect the market value of the property or the purchase price).
Annual Percentage Rate (APR)
The yearly interest percentage of a mortgage expressed by the actual rate of interest paid, given the term, rate, amount and cost of arrangement.
To be in arrears is to be behind in the payments called for as part of the mortgage agreement.
An “assessment” is the value of a property that is a historical, static estimate of the value of a property used by municipal governments as a basis for calculating annual property taxes.
An “assessment notice” contains the “assessed value” and is used to calculate the property taxes for the year (property taxes = assessed value * current “mill rate”).
An amount assigned to taxable property for the purpose of calculating property taxation.
One who takes the rights or title of another by assignment.
Assignment of Interest
Most Provinces allow a legal assignment of interest in a mortgage to have full legal effect without first having to discharge and recreate the existing mortgage.
This is particularly useful in (1) a mortgage switch, where the costs of transferring lenders could be very high, and (2) second mortgage, where a postponement may be difficult to obtain.
Assignment of Mortgage
The assignment of a mortgagee’s interest in the mortgage to a different mortgagee.
Assignment of Rent
The redirection of rental income to a mortgagee (usually in the event of default).
One who transfers or assigns the rights or title to another.
The type of mortgage where a qualified buyer can take over a mortgage from the current owner upon the sale of a property.
If a buyer can assume a mortgage, they may do so at a below market interest rate in addition to saving on the legal costs of creating and registering a new mortgage.
” Assumption” of a mortgage entails a simple amendment to the mortgage document registered on title (refer to “switch”).
A document that obligates someone other than the mortgagor to complete the mortgage obligations.
Assumption of a Mortgage
The action taken by a purchaser who is responsible for a mortgage debt through a legal agreement; the original covenantor(s) responsibility pursuant to the mortgage obligation remains intact in such arrangement unless it has released by the mortgagee. See Release of Contract.
The legal right given by a principal to an agent to act on the principal’s behalf while performing specific acts, e.g. negotiations.
Balance Due On Completion
The amount of money the purchaser has to pay to the vendor to complete the purchase after all adjustments have been made.
The final mortgage payment at the end of the term that pays the outstanding loan in full.
Payments that consist of equal amounts of principal and interest paid at regular intervals during the term of the mortgage.
Blend and Extend
A closed mortgage that can be “opened” for the purpose of extending the term; many lenders will blend the penalty for breaking the mortgage (usually an interest rate differential, or IRD) with the rate for the new extended term.
The main idea of the “blend and extend” is to enable the mortgagee to obtain a lower rate and protect against future mortgage rate increases.
Breach of Contract
Failure to fulfill an obligation under a contract; breaching confers a right of action on the party whose rights under the contract have been breached.
A loan required by a builder so as to obtain funds during the period between a permanent commitment and a construction loan.The lender will usually require a permanent mortgage commitment to the full amount of the construction loan plus a hold back provision that states that only the floor amount will be funded at the completion of construction.
An individual with a “broker” designation may establish a sole proprietor practice or set up a corporation called a brokerage. For brokers, the corporation becomes the agent or broker and the individual is considered a registered real estate salesperson employed by the corporation. When you list your property or sign a buyer agency agreement, you enter into a contract with the brokerage, not the salesperson.
Regulations established at the municipal, provincial or federal government level to provide structural requirements for building construction.
Buy-down is a payment to the lender at the time of funding for purposes of reducing the interest rate during the term of the mortgage; often used as marketing features by new home builders, particularly on high ratio second mortgages.
A Realtor who is engaged contractually to act on behalf of the buyer or seller. In most cases, the Realtor acts on behalf of the sellers and is paid out of the proceeds of the sale. A Buyer’s Agency Agreement allows a Realtor (with full disclosure to the sellers or their agent) to negotiate on behalf of the buyer with no legal conflict of interest. In this case, the seller still pays the Buyer’s Agent fees but this is always specified in the agreement and acknowledged in the Offer to Purchase.
The highest rate that a borrower will pay within a defined time period. Examples of the cap rate are (1) the rate stated on the commitment letter or mortgage pre-qualification for the maximum rate that will be paid by the borrower during the term of a protected variable rate mortgage.
This is the rate of return an investor hopes to achieve through investment in a property.
The value of a property based on the net income.
A Latin statement whose translation is “Let the buyer beware”. In terms of purchasing a home or property, a buyer must fully examine all aspects of the transaction before agreeing to the purchase.
Certificate of Title
The sequence of conveyances and encumbrances that affects a title to land, from the time of the original patent or as far back as records are available.
The name applied to a mortgage document when title is registered under the Land Titles Act. A “charge on title” is any encumbrance or claim that affects title to property.
An encumbrance that is against moveable possessions or personal property (“chattels”) that may be removed without damaging to the property.
A mortgage whose terms state that it cannot be paid out, even with a penalty, unless the lender agrees.
Note that in some cases, a closed mortgage may be paid for in full but at a defined cost such as the interest rate differential (IRD) or sometimes with a punitive penalty such as full interest to maturity.
The final exchange of consideration and legal documents completed at the endo of a house purchase or mortgage registration (or both) transaction.
The Canada Mortgage and Housing Corporation (CMHC) is a Canadian federal government crown corporation which administers the National Housing Act. One of the services provided by CMHC is the insuring of high ratio mortgage loans for lenders.
A mortgage where a promissory note is used to securee the loan.
A form of security that one pledges as a way to reduce the risk of a mortgagee.
A written letter from the lender stating that they will lend mortgage funds to a specified borrower (or borrowers) as long as certain conditions are met within a specified period of time period before the closing date. A key component of the commitment is the “rate hold” – this is where a lender may put a “cap” on the mortgage rate for a defined period of time (e.g. 60 days or 90 days), particularly in a period of volatile interest rates. For new homes, commitments on financing may have longer closing dates and can be negotiated between the lender and the builder and be held for as long as 6 months or even a year.
The date on which your purchase will complete and money will change hands between you and the sellers.
A mortgage loan granted following the satisfactory completion of construction or repairs.
A compliance letter may be required in some municipalities before a property transfer can take place. This letter acknowledges that a property either is clear of outstanding work-orders such as those that specify clean-up or repair requirements that an owner must complete before a transfer of ownership.
Interest on both the principal and interest that has accrued.
An event or action necessary before an agreement becomes binding; also known as a “subject clause”.
A condition referring to a future event upon which the contract is no longer binding on the parties.
The ownership of separate space within in a multiple dwelling or other multiple-ownership of common elements that are used jointly among other owners.
Charges that utility companies charge a fee on closing to connect new buyers to their services.
An item of value given to make a promise of repayment enforceable.
A sum of money advanced to the borrower in the form of a construction loan.
A claim against property that is pursuant to labour, services, or materials supplied.
A mortgage that is advanced in pre-determined stages, according to the amount of work completed, for a construction or building project.
Construction Loan Agreement
An agreement set between a builder and lender that establishes the terms of an agreement (the loan amount, rate, method of drawing funds, conditions for advancing).
An agreement between two or more parties given receipt of lawful consideration to do or refrain from doing some act.
A written agreement used for the transfer of mortgage, charges, or leases etc.
A mortgage usually amounting to 75% Loan to Value ratio (or less) of the property value.
The type of mortgage whereby one converts their mortgage to a new one of longer term while it is still in effect.
An agreement contained within a mortgage document that creates an obligation; the agreement may be positive, i.e. it stipulates the performance of certain acts, or it may be negative or restrictive, i.e. it forbidds the commission of certain acts.
A report, available from at a credit bureau, that specifies an individual’s payment history. Anyone who wishes to obtain a credit report can order a copy of their report by contacting their local credit bureau.
Compensation or indemnity for loss owing to breach of contract.
Date of Completion
The date specified by an agreement of purchase and sale, when the purchaser is to deliver the balance of money due and the vendor to deliver a duly executed deed.
The amount of principal and interest payments made under a mortgage.
Failure to fulfill an obligation; failure to make monthly mortgage payments as agreed, or to meet certain other terms of a mortgage agreement.
An accounting method of dealing with income that is received but not included in a statement of earnings as normal earnings.
An insufficient payment, often relating to an amount recovered under a power of sale or foreclosure action.
Payment is made on demand, usually within a few days notice to the borrower.
Payment of money or other valuable consideration as pledge for fulfillment of contract.
Depreciated Reproduction Cost
Appraisal method by which the cost of replacing a structure, minus depreciation, gives the depreciation reproduction costs.
A loss in value due to any cause.
Discharge of Mortgage
A document executed by the mortgagee, and given to the mortgagor when a mortgage loan has been repaid in full before, at, or after the maturity date.
A statement contained in a consumer credit transaction in order to disclose complete credit terms and interest rates.
Reduction in product price or cost of a service. A discount if the difference between the nominal face value of a loan and actual cash received by the borrower because interest is paid at the beginning of a loan based on the sum to be repaid at maturity.
Discounted Cashflow Analysis
This is a method of analysis that calculates the true value of an investment in terms of the present value, i.e. what the investment ifs worth now, although it is spread over a number of years. To compensate for future earnings a discount factor is added in so that a real comparison can be made between an investment with quick return and one that is placed over a number of years.
The face value of the loan minus the interest or discount charged by the lender is the amount actually advanced to a borrower.
The estate which derives benefit from an easement over a subservient estate, as in a Right-of-Way.
This feature (not offered by all lenders) allows you to double up your mortgage payments anytime without penalty. This feature is often associated with the ability to “skip” an equivalent number of payments. This can be used either to accelerate the pay-off of a mortgage (as it is an enhanced prepayment privilege) or to manage a volatile cash flow. For example, commission-based individuals such as Realtors could “double-up” with each commission cheque, and “skip” during low cash flow periods.
A wife’s interest in the lands of her husband accruing to her by virtue of the marriage.
The amount of cash paid towards the purchase transaction by the buyer of a home. This is also known as the purchaser’s initial “equity” in the property, but is used by a lender to judge the personal commitment to the property. For example, a lender considers that, if a buyer saved the down payment, or received it as a gift from a loved one, they will be far more committed to maintaining the property value and making the mortgage payments than if they acquired it for “no money down”.
Occurs where the debt service on a mortgage exceeds the yield on an investors’ property, thereby reducing cash flow.
The person, bank, or corporation on whom a bill, note or cheque is drawn from and from whom payment is expected by the payee or his assignee.
The person or corporation who writes a cheque or note for payment to a third party. In the case of a bill of exchange, the drawer is the creditor and is usually the payee.
The right acquired for access over another person’s land for a specific purpose, e.g that to build a driveway, fence, wall, or public utilities.
Loss in value of property due to influences related to the property or those not controlled by the owner.
Effective Gross Income
The estimated gross income minus allowances for rent and vacancies losses.
Effective Interest Rate
The actual interest rate on investment where a debt or loan was bought at discount or at a premium.
Some type of fixture, e.g. wall or fence, which illegally intrudes onto or invades on public or private property diminishing the size and value of the invaded property.
The outstanding claim or lien recorded against property, or any legal right for use of the property by another person who is not the owner.
The mortgage loan to the final customer such as a purchaser of a condominium unit.
The transfer of equity in property as security for a debt; any mortgage registered after the first mortgage can be an equitable mortgage business.
The difference between the value for which one can sell their property and what is owed against it.
Equity of Redemption
The right whereby a mortgagor may reclaim clear title to the real property upon full repayment of the debt.
The reversion of property to the state in event the owner dies and has left no will and having no legally qualified heir(s) to whom the property may pass by lawful decree.
The degree, extent, nature or quantity of interest which a person has in real property.
A written statement or certificate which states certain facts upon which the receiver of the statement or a third party may rely. For example, a lender’s estoppel statement as to a purchaser or property: this states that a lender cannot later deny the truth of these statements because a third party has relied and acted upon them.
Exact Day Interest
Interest calculated on the basis of 365 days per year or by 366 days when it is a leap year.
A clause which removes one party from personal liability in the event of a default.
The act of forcefully taking private property for public use.
The lengthening of a term on a contract to (1) extend the maturity date, (2) permit more time for the performance of an obligation or condition, or (3) extend the coverage of a lien to include more property.
An analysis to determine the feasibility of a project. Details of construction costs, projected income from the project plus location and economic factors affecting the project will be required. Similar to a feasibility study by a developer conducted to decide whether to proceed with plans and required by the lender to decide whether to provide funds.
The highest estate or absolute right in real property.
A statement filed by a creditor in a public records office identifying the parties, giving their addresses, and describing the collateral.
Gives the lender a primary lien/charge against your house and property which has precedence over all other mortgages. Priority is determined by the date and time registered, so a first mortgage was literally and legally registered “first”. A new first mortgage can therefore only be registered as a “first” mortgage upon the discharge of an existing one if the holder of a second mortgage “postpones” (i.e., “puts back in time”) to a time immediately following the registration of the new first mortgage.
First Mortgage Bond
Bonds issued by a corporation secured upon the property and earnings of the issuing corporation.
Five-Percent Down Program
This allows buyers to obtain up to 95% financing on properties up to a certain value. The loan must be insured against default by CMHC (Canada Mortgage and Housing Corporation) or GE Capital Mortgage Insurance Corporation. This maximum home value will vary according to location (local Realtors should know the applicable limit) and eligibility can vary with personal circumstances.
Fixed Rate Mortgage
This is the usual form of mortgage where interest rate remains the same during the entire life of the loan.
Permanent improvements to property that may not be removed at the expiration of the term of lease or tenure.
Floating Rate of Interest
Rate of interest which fluctuates according to prime lending rates, eg. 2% above prime rate usually chargeable on short term loans such as construction loans.
Floor to Ceiling Loan
A permanent loan or advance made in two stages, (a) on completion of construction according to agreed upon terms and conditions, and (b) the balance advanced upon occupancy or upon cash flow requirements.
Remedial court action taken by a mortgagee when default occurs on a mortgage, to cause forfeiture of the equity of redemption of the mortgagor.
The ownership of a tract of land on which the building(s) are located. The oldest and most common typed of ownership of real estate.
Fully Amortized Loan
A mortgage loan wherein the stipulated repayments repay the loan in full by its maturity date.
A second or subsequent loan of money to a mortgagor by a mortgagee, either on the same or on an additional security.
The General Electric Capitol Corporation – Canada’s only private default mortgage insurer – insures high ratio mortgages for lenders.
Graduated Amortization Mortgage
A method of repayment of a mortgage where payments in the initial period are low and are gradually later increased to a higher rate.
A term used in deeds of conveyance to indicate a transfer of an interest or estate in land.
The party to whom an interest in real property is conveyed (the “buyer”).
The person who conveys an interest in real estate by deed (the “seller”).
Gross Debt Service Ratio (GDSR)
The percentage arrived at by dividing your monthly shelter costs (principal, interest, property taxes, heating and half of condominium fees if applicable) by your gross monthly income and multiplying by 100. This calculation is used by all lenders as a yardstick by which they can measure the ability of a borrower (or borrowers) to make mortgage payments. Most lenders set a threshold of 32% for this ratio, while other lenders may allow higher limits; 32% is also the maximum qualifying GDS for most default insurance applications.
The scheduled income from the operation of the business of the management of the property, customarily stated on an annual basis. Income before deductions for tax or expenses.
Gross Rent Multiplier
An appraisal method where the fair market value of property is calculated by multiplying the gross rents by a factor which varies according to the type and location of the property.
Guaranteed Income Mortgage
A guarantee included in the purchase money (by a seller-mortgagee) that there will be a minimum cash-flow or net operating income to the purchaser mortgagee (this type mortgage is limited in duration and may be combined with a management contract where the seller agrees to manage and operate the property).
A guarantor is a third party who has no interest in a property but agrees to assume responsibility for a debt in the event of default by the mortgagor.
A complex money market instrument whose purpose of is to insure a mortgage lender (or borrower, through a protected or split-term mortgage) against interest rate movements. In the case of lenders, the price of this insurance will vary depending upon many different factors, but will generally be lower when interest rates and the economy are less volatile. Conversely, the buyer can hedge at no cost, or at a reasonable rate premium, by using specifically designed products.
A mortgage where the Loan To Value ratio is greater than 75% of the value of the property; this type of mortgage normally requires the mortgagee tp purchase insurance to ensure the lender is protected against default.
An amount of money retained by a construction lender or owner until satisfactory completion of the work performed by a contractor.
Home Inspection Report
A report commissioned by a property owner or purchaser, usually to verify the condition of a property prior to the “firming up” of a Real Estate transaction. The scope and detail may vary, but most reports indicate the specific problem and the cost to repair. Unfortunately, no licensing is required, and this service is not specifically regulated other than by general consumer protection legislation. The best safeguard against inadequate work is to ask for the resume of the Inspector, and if possible check references from previous customers.
Immediate Participation Loan
A loan where all partners contribute their share immediately.
Income Property Loan
A loan that is secured on property which already has a source of income (e.g. rent); the loan is used to cover the debt service payments on the loan.
The ratio of operational expenses to gross income, expressed as a percentage.
A document of deed expressing certain issues, agreements or issues between the parties.
A judicial process or order requiring a person to whom it is directed to do or refrain from performing a particular act.
A written legal document.
Insurable Value is used to designate the amount of insurance which may be carried on destructible portions of a property to indemnify the owner in the event of loss.
A single registered document that encumbers multiple properties.
Interest Adjustment Date
A date from which interest on a mortgage advanced is calculated for regular payments. The IA date is usually one payment period before regular mortgage payments begin, as interest payable is due from the date a mortgage is advanced.
Rate of interest on a loan is raised periodically during the term of the loan.
Interest Only Loan
Where the borrower pays back only the interest on the loan and there is no amortization until the end of the term. An “interest-only loan” may be used when a purchaser wishes to resell property after a short period or if they wish to accumulate enough income from the property before amortization.
The profit of a loan calculated on a percentage basis.
Interest Rate Differential
A penalty for early prepayment of all or part of a mortgage outside of its normal prepayment terms. Normally this is calculated as the difference between the existing rate and the rate for the term remaining, multiplied by the principal outstanding and the balance of the term.
To calculate the IRD, given
1. $175,000 mortgage at 8.75% with 24 months remaining.
2. Current 2 year rate is 6.25%.
3. Differential is 2.5% per annum.
4. IRD is $175,000 * 2 years * 2.5% p.a. = $8750.
Interim loans are a short-term means of bridging the gap between the construction loan and the permanent loan (hence they are known as “bridge” loans) .
A person who dies without a will, or leaves one which is defective, in which case the estate descends (by operation of law) to the next of kin.
Incapable of being recalled or revoked, unchangeable or unalterable.
Joint and Several Note
A promissory note in which there are two or more promisors who are jointly liable.
Ownership of land by two or more persons where, on the death of one, the survivor or survivors take the whole estate.
Land Acquisition Loan
A loan advanced to acquire land as opposed to one acquired for land or buildings improvements.
A contract drawn between a seller and buyer for the sale of property.
Land Development Loan
A loan advanced for the purpose of residential land development.
Land Transfer Tax
A tax payable to the crown (usually the provincial government) by the purchaser upon the transfer of title from a seller.
A type of interest in a property that is granted for a specified period of time as stated in the contract.
A method of estimating the value of leasehold property.
A mortgage given by a lessee on the security of the leasehold interest in the land.
A written description by which property can be located for purposes pf registration in a land registry system.
The transfer of a legal estate or interest in property for the purpose of securing the repayment of a debt.
An independent appraiser’s value interpreted by the lender as to the worth of a property in the current market given a reasonable time period to sell the property.
The tenant under a lease.
The market value of property less the value of the leasor’s interest.
The person who grants the use of the property under lease to a tenant.
Letter of Commitment
A letter written by a lender that states the amount of the loan, specified interest rate, term of loan, and other specific conditions.
Letter of Credit
The letter issued by a bank or lending institution that promises payment to a third party in accordance with the terms of the agreement. For example, letters of credit may be used in situations where a deposit is required or as security.
In real estate terms, upside leverage occurs when the yield or net return on property exceeds the debt service for a loan. Conversely, downside leverage occurs when the debt service is greater than the net return on investment.
A lien is a claim made against a property for the payment of a debt or obligation related to the property or its owners.
Lien Hold Back
A percentage of the contract price, or estimated cost of work to be done, that is held back from a mortgage advance.
Line of Credit
A maximum credit limit allowed by a bank to a borrower, provided the borrower maintains an acceptable balance on account or has a good credit rating (the line of credit may vary according to the changing circumstances of the borrower or the bank).
The ratio of net operating income to debt service; in general, a loan coverage of 1.3 to considered to be adequate for a loan to value ratio of 75%.
A charge for making a loan in addition to the interest charged to the borrower.
Loan Loss Reserve
A reserve shown on a balance sheet as provision for any future losses in assets.
Analysis of loan applications from prospective purchasers to determine if they meet with requirements upon which the lender may issue a commitment letter.
Loan Portfolio Turnover
The average length of time required for the turnover of mortgage loans until maturity.
The process a lender goes through upon application and approval of a loan; e.g. the procedures completed to finalize and disburse the loan such as the setting up of files, ordering of credit reports, verification of employment, bank accounts etc.
The ratio of the principal amount of the mortgage loan to the lending value of the property.
The percentage of the value of a property for which a mortgage is required. The LTV ratio is used to determine whether or not default mortgage insurance is required, and, if so, the cost of mortgage insurance. For example, given a property value is $250,000, and the down payment available is $25,000, the required mortgage is $225,000; therefore, the LTV is $250,000 / $225,000 or 90%.
A clause that restricts prepayment of a loan during a specified period of the mortgage.
Margin of Safety
The excess of equity at fair market value above the outstanding amount of the loan.
Any property in which a person has an interest and that is or has been occupied by the person and their spouse as the family residence; matrimonial homes include condominiums, co-operatives, and leasehold interests.
The last day of the term of the mortgage agreement; a mortgage loan must then be paid in full or the agreement renewed by this date.
The legal pledge of real estate as security for a loan.
A bond that is issued by corporations and secured by a mortgage on their property.
A registered agent who negotiates with lenders on behalf of a borrower to obtain the best overall mortgage for that borrower’s circumstances. Mortgage Brokers are particularly useful in financing “non standard” situations which cannot be funded by a major national lender. This is possible because a Mortgage Broker has access to lenders who do not advertise nationally or operate retail locations.
A formal indication by a lending institution that it will grant a mortgage loan on property, for a specified amount, based on specified terms.
A mortgage debenture is the same as a mortgage bond.
The “lender” of a mortgage loan.
Mortgagee In Possession
A mortgagee in possession is that where one enters into actual occupation of, or by obtaining the receipt of the rents of, the mortgaged premises.
If the down payment is less than 25% of the purchase price of the property, the lender is will require either private mortgage insurance or public mortgage insurance through Canada Housing and Mortgage Corporation (CMHC) or GE Capital. The fee is calculated as a percentage of the mortgage; known as “default insurance”.
Mortgage Insurance Premium
An insurance premium which is added to the mortgage and paid by the borrower over the life of the mortgage. The mortgage insurance insures the lender against loss in case of default by the borrower.
Mortgage Life Insurance
A form of insurance recommended for the borrower; in the event of the death of the owner(s), the insurance pays the balance owing on the mortgage. The intent of mortgage life insurance is to protect survivors from losing their home.
An agreement by which a sum of money is borrowed and a promise to repay is given by a mortgagor, and as a further security, the mortgagor gives the mortgagee a conveyance on the property they own (a promissory note executed in favor of the lender giving them an encumbrance or lien on the mortgagor’s property).
A promissory note executed in favor of the lender giving him an encumbrance or lien on the borrower’s property. The mortgagor is usually liable on this type of note.
Several mortgages held by a mortgagee, lender or broker.
The process where a mortgagee may permit the mortgagor to renew or replace an existing mortgage that falls due prior to the maturity date.
A mortgage lender or broker who approves or turns down loan applications based upon the quality of the real property, credit-worthiness and ability to pay according to the guidelines of the lender with regard to ratio of mortgage loan to value of property.
A term used when a mortgage exceeds the current value of the property on which it is secured.
The mortgagor is the “borrower”.
Multiple Listing Service (MLS)
A service of a local Real Estate Board which publishes and exchanges details of properties registered with them. The majority of properties sold in Canada are sold through the local MLS.
A levy charged by a municipality to recover the cost of special services, if these services cannot, for some reason, be funded out of general revenues, or apply primarily to home-buyers (e.g. water meter installation, road and sewer improvements)
When operating costs exceed gross rental income or debts.
Net Operating Income
The balance remaining after deducting the operating expenses from gross receipts and gross rental, but not including the deduction of debt service on mortgages. The “free and clear return” on property is calculated by the ratio of NOI to total investment including mortgages and equity. (“free and clear return” gives a direct means of comparing the return on different properties)
Net Rate of Interest
The interest rate received by a mortgagee net of the servicing fee deducted by a loan correspondent, etc.
The difference between what you own (assets) and what you owe (liabilities) is called your net worth.
Nominal Interest Rate
The interest rate stated on the face on a loan document. Note that if the loan amount is discounted or sold at premium, the effective rate of interest will either be higher or lower.
A clause in a loan that waives personal liability of the borrower on the loan.
An advance made according to terms of a pre-existing construction loan agreement or mortgage.
Offer To Purchase
A written proposal that is either “firm”, i.e. it has no conditions, or “conditional”, i.e. certain conditions that have to ve fulfilled, to purchase real estate that becomes binding upon acceptance of the vendor.
Open End Mortgage
A mortgage under which the lender has the option of advancing more funds where the value of the property is anticipated to increase.
This enables one to pay back the borrowed funds without notice or penalty. There are two types of open mortgages:
- Fixed rate mortgages: mortgages where the term is usually short, e.g. 6 months to a year, and the interest rate will be higher than on a closed mortgage.
- Variable Rate Mortgages: mortgages that are open.
Open Or Closed
The restriction or denial of repayment rights until the maturity of the mortgage is a closed mortgage. For example, if the mortgage is specified as open, then the mortgagor can pay extra payments of principal sums at any time or at specified times with or without repayment penalty.
All expenses, occurring periodically, that are necessary to produce net income before depreciation; under some conditions these expenses may be placed in two categories: operating expenses and fixed charges.
A right give by the owner of property to another, for a consideration, to buy a certain property within a limited time at an agreed price.
Judgement taken against a mortgagor that extinguishes the equity of redemption.
The lawful possessor of the title to real property.
The combination of two types of loan. For example, a construction loan and permanent financing (the borrower benefits by only having to negotiate with a single lender and only having to pay a single set of closing costs)
A discharge of a definite portion of the mortgage lands given after the mortgagor has prepaid a specific portion of the mortgage debt.
An agreement whereby two or more lenders share in advancing a portion of a loan made by the originating or lead bank; the terms in this type of agreement establish a method of apportionment and interest rates.
An arrangement whereby individuals join together where, in the beginning a general partner who has the experience and the limited partners have the money, in the end the general partner has the money and the limited partners gain the experience.
Percent Paid Off
The percent of principal that is paid off at any given time under an amortization schedule.
Percentage Rent Plus Minimum
A percentage rental which must be paid in addition to the minimum; this is a minimum rent that is not credited against percentage rent payable.
Percentage Rental Against Minimum
A rental paid on a percentage lease where rent paid by a tenant varies according to volume of business. For example, a percentage of gross receipts, sales or revenue are paid to the extent where they exceeds a minimum rental.
A long-term mortgage usually intended to finance both land and improvements after completion of construction and is used to pay down a construction loan.
A legally-binding promise made by a borrower to repay the mortgage including the interest. The “personal” aspect refers to the lender’s right to personally sue the borrower for breach of promise or default of the mortgage.
A person liable on a debt to the full extent of their entire assets as opposed to limited liability where a maximum or a ceiling is fixed on the amount of assets that can be drawn upon to satisfy a debt.
With personal liability, joint and several liability establishes the liability of each individual borrower for the total debt, joint liability binds all the borrowers together in one action, and several liability fixes the liability of each borrower to the extent of their share of the debt.
All property except land and the improvements completed for the land.
A mortgage which allows one to transfer the amount and terms over to a new property without cost or penalty. The mortgage must be registered on title of the new property, therefore it is not identical in all respects. While most mortgages have a portability feature, one may require additional money when transferring the mortgage to the new property.
A mortgage may contain a postponement clause where the mortgagee permits the borrower to renew or release an existing first mortgage that falls due prior to the maturity date of the current mortgage.
Power of Sale
The right of a mortgagee to force sale of the property without judicial proceedings should default occur.
A clause inserted in a mortgage that gives the mortgagor the privilege of paying off some or all of the mortgage debt in advance of the maturity date.
If one’s mortgage is not fully open, they may be charged a penalty to pay off all or part of the mortgage before the end of the fixed term. Normally, the prepayment penalty is the greater of three months’ interest or the interest rate differential (IRD) on the amount to be prepaid. Note that with CMHC (insured) mortgages, plus a few of the major lenders, the maximum penalty is set at 3 months interest after the mortgage has been in effect for three years regardless of the number of times it has been renewed.
The right to periodically repay an amount that is greater than the scheduled principal payment. This may be limited to a single annual payment on the anniversary date of no more than 10% of the original principal.
An interview with a client, generally prior to the writing of an offer to purchase a property, in order to determine the applicant’s qualifications for obtaining a mortgage.
The rate charged by banks to their most credit-worthy borrowers; this rate is also referred to as the rate of interest paid on government bonds.
The amount borrowed for a mortgage.
Principal, Interest, Taxes, Heating (PITH)
The principal, interest, taxes, heating and half of any condominium fees, if applicable. These expenses are known as the “shelter expenses”. The “shelter expenses” are a basic component of the ratios used to determine whether one qualifies or not for a mortgage.
Pro Forma Statement
A financial statement of the gross income, operating costs, net operating costs and net operating income for a specified financial period (e.g. one year) using specified assumptions.
Loan advances made on a property under construction where a lender makes advances on the basis of the retention at all times of an amount of the loan which, in their opinion, will be sufficient to complete the building should the construction fail to be completed.
Estimated income from a property.
A written document that acknowledges a debt and promising payment.
Refers to the rights which an individual enjoys by virtue of their ownership.
A mortgage loan taken back by the property vendor in lieu of purchase funds in order to help finance the purchaser.
Real Estate Representative
A person (often incorrectly referred to as an “agent”) who has met provincial government criteria for registration as a real estate salesperson and is employed by a broker to trade in real estate on behalf of the broker. A Revenue Canada income tax ruling that created “independent contractor” status for salespeople, giving them more tax deductions, has left a false impression that salespeople are legally independent of their broker.
A registered real estate broker who holds active membership in a local real estate board and the trademark of the Canadian Real Estate Association.
The buying back of a mortgage estate by payment of the sum due on the mortgage.
A period of time allowed by law where a mortgagor may redeem their property by discharging the entire debt in arrears.
To first discharge a current mortgage and all registered encumbrances and then arrange a new mortgage.
Fees paid to the municipal or provincial government for a title transfer, mortgage registration or other instrument such as an assignment or lien.
Registration and Discharge Dates
Dates of registration by number and date given to the mortgagee. When the mortgage loan has been paid in full on or after maturity date, the mortgagee executes the discharge or cessation of charge and registers same to liquidate the mortgage which allows the mortgagor to redeem the mortgage.
Registered Retirement Savings Plan (RRSP)
An RRSP is a federal plan that allows a taxpayer to contribute approximately 18% of earned income tax free – to a maximum of $13,500 – into a retirement plan. If a taxpayer has already paid tax on personal income, then the RRSP contribution can result in a significant tax rebate. Since RRSP’s can be contributed to retroactively, this enables large cash refunds to get first-time home buyers to take the plunge.
Release of Charge
A discharge of a mortgage.
Release of Covenant
A release given to the mortgagor of a property that is sold to a new purchaser who is acceptable to the mortgagee.
An agreement where the lender may agree to extend the mortgage loan, possibly on revised terms as to the repayments of the principal or interest rate.
The ceiling portion of a permanent loan commitment that is advanced upon reaching a minimum rental or occupancy rate.
The monetary amount agreed to for the right to the agreed use of real estate.
A limitation contained in the deed regarding the use of property or other written instrument in the title.
A restriction in a title to limit or govern the use of the land.
The periodical balancing of an account made for the purpose of converting interest into principal, and charging the party liable with compound interest.
Return on Investment
Free and clear return is calculated as the percentage of net operating income to total investment in the property.
The right to repossess and resume the full and sole use and proprietorship of real property which temporarily has been alienated by lease, easement or otherwise. Depending on the terms of the controlling agreement, the reversionary right becomes effective at a stated time or under certain conditions such as the termination of a leasehold, abandonment of a right-of-way, or end of the economic life of the improvements.
A claim or title enforceable by law.
Right of Survivorship
A distinguishing feature of joint tenancies which provides the means, where land is held in undivided portions by co-owners, upon the death of any joint owner, for their interest in the land to pass to the surviving co-owner rather than their estate.
Right of Way
The right to pass over another’s land according to the nature of an easement.
Where the rights of the owners of land on the banks of watercourses include the use of the water on, under, or adjacent to their land, including the right to acquire wharves and fish therefrom.
A type of mortgage where the interest rate is established for a specific period of time. At the end, the mortgage is said to “roll over” and the lender and borrower may agree to extend to loan. If satisfactory terms are not be agreed upon, the lender is entitled to be repaid in full. In this case, the borrower may seek alternative financing.
Running With The Land
A covenant is said to “run with the land” when it extends beyond the original parties to the agreement and binds all subsequent owners to either liability to perform it or the right to take advantage of it.
Sale and Leaseback
A method of financing where a property is sold to a purchaser who simultaneously enters into a long-term lease of the property with the vendor. The vendor (now the lessee of the property) remains in possession for the specified term of the lease and covenants to pay the rental to this purchaser (now the lessor of the property) as well as all operation expenses.
This is a clause that enables the mortgagee to demand payment of the outstanding balance including interest upon sale or transfer of title.
Sales Hold Back
A percentage of the principal amount of the mortgage held by the mortgagee until the property in question is sold to a party satisfactory to the mortgagee.
A mortgage loan granted and registered when there is already a first mortgage registered on the property.
The distance from the curb or other established line within which no construction may occur.
Interest that is computed only on the principal balance – it is not compounded by calculating interest payable on accrued interest.
Single Family Dwelling
A residential property designed for occupancy by one family that is situated on land zoned specifically for that purpose.
A device by which lending is split into separate pieces and treated individually.
A commitment from a mortgage lender to make a loan in a specified period of time, for specified terms, with the understanding the borrower will not draw down the funds.
Statement of Adjustments
A statement that establishes the details of a mortgage transaction.
A law established by an act of municipal council, or the provincial or federal legislatures.
Statute of Frauds
A law which provides which states certain contracts, e.g. real estate contracts, must be in writing in order to be enforceable at law.
Statute of Limitations
That period of time specified within which an action of law must be brought or else the action is forfeited.
A lease providing decreases in rental payment at specified dates.
Opposite to step-down lease.
The right of a person to secure ownership by reason of their outliving another person (or persons) with whom they shared the undivided interest in the land.
The legal written and mapped description of the location and dimensions of a property. The survey should also show the dimensions and placement on the lot of any structure, including additions such as pools, sheds and fences. An up-to-date survey is often required by a lender as part of the mortgage transaction.
This is the term almost universally applied to changing lenders at the end of a term, when the mortgage becomes “open”. Many lenders will now pay all of the costs of a “switch.”, as well as giving them a reduced rate to lure them away from competitors.
Takeout Mortgage Loan
A long term mortgage loan that is advanced to borrower on completion of construction or in compliance with any other conditions in the loan commitment.
At the time of a sale, the lawyer for the buyer must confirm that all local taxes have been paid up to date. If they are, a tax certificate is issued from which any adjustments can be made – usually requiring the buyer to compensate the seller for any prepaid taxes. However, if the taxes are not up to date, the municipality requires that the seller pay them off from the proceeds of the sale. If there are insufficient proceeds, then it usually falls on the buyer to pay them.
A lien imposed by a taxing authority on real estate for failure to pay taxes within the time required by law.
Tenancy In Common
Ownership by two or more persons; however, unlike joint tenancy, in that interest the deceased does not pass to the survivor but is treated as an asset of the deceased’s estate.
The length of time which a mortgage agreement covers; payments made may not repay the outstanding principal by the end of the term because of a longer amortization period.
The means of evidence by which the owner of land can prove their ownership.
A policy which insures the lender against loss due to a flaw in the title of property held as collateral for a mortgage, and thus the mortgage lender against any legal questions on the title to the real estate or of legal priority of the mortgagee.
An examination of the title of a property as indicated in the public records in order to determine the ownership of the subject property and the existence of any encumbrances or defects.
Total Debt Service Ratio (TDSR)
The percentage of gross annual income required to cover payments associated with housing and all other debts and obligations. The Total Debt Service Ratio (TDS) is a percentage calculated by dividing monthly shelter costs (principal, interest, property taxes, heating and half of condominium fees if applicable) PLUS all other monthly debt obligations by the gross monthly income and multiplying by 100. TDS is used by all lenders as the upper limit on which to measure the ability of a borrower to make mortgage payments. Most lenders require that this ratio be no more than 40% for a particular application with some as low as 37%; 40% is also the maximum qualifying TDS in most applications for default insurance.
To convey from one person to another.
Transfer of Title
A document signed by the seller and purchaser transferring ownership, at which time the document is registered against the property.
An account held by an agent on behalf of their principal for the payment of money due to a third party on the event of specified incidents. For example, a vendor’s lawyer will hold funds on their behalf until title deeds to property have been delivered and property registered and the keys delivered to the purchaser, or an account maintained by a mortgagee for the payment of property taxes or life insurance premiums.
This type of mortgage is also referred to as a “wrap around”, which is a special arrangement where one document encompasses one or more already existing mortgages registered on the same property. The mortgagee is responsible for remission of payments to the lender while the mortgagor makes one payment to the mortgagee.
This is a promise made by a lawyer to ensure that certain conditions of the lender are met after closing, due to time constraints. For example, to register a discharge of an old first mortgage after the new one has been registered because there is simply not enough time to do so at closing. Furthermore, undertaking also governs such closing activities as releasing funds before a new mortgage document is officially registered.
The process of deciding whether or not to lend money, or the amount of the loan, based on information provided to the lender. Every lender has a different underwriting process and lending criteria which differ between various lenders.
Having binding force & legally sufficient as authorized by law.
The granting of a beneficial right, e.g. an interest, profit, or suffering of some detrimental forbearance, loss or default, by one party in exchange for the performance of another.
Variable Rate Mortgage
A mortgage where the interest rate is usually compounded monthly and fluctuates with the prime rate at the chartered banks. In most (but not all) cases, a variable rate mortgage is fully open.
A seller of real property.
The seller sometimes takes the mortgage at a rate lower than market rates. Most of these arrangements are not renewable nor transferable to the next owner.
Vendor Take Back Mortgage
A type of mortgage where a vendor of a property takes from the purchaser as partial payment of the purchase price for that property.
Verification of Employment
The lender will sometimes contact an applicant’s employer in order to verify information provided in a mortgage application or a job letter, e.g. income structure, length of employment, position.
Meaning literally “of legal effect; a nullity”.
Where one party to a contract is entitled to rescind the contract at their discretion.
An international relinquishment of some right or interest, the renunciation, abandonment, or surrender of some claim.
When a person places their name to a deed, will or other document for the purpose of attesting its authenticity and proving its execution by testifying.
Municipal by-laws require that residential property be maintained in a safe and habitable condition, and that a property’s use conform to specific requirements, e.g. no illegal basement apartments, satellite antenna, etc.
This type of mortgage is often erroneously referred to as a “blanket mortgage”. It is a new mortgage, registered on the title, that includes a prior existing mortgage as the new mortgagee undertakes the responsibility as mortgagor under the original mortgage.