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Mortgage GlossaryAppraised value: The estimated fair market value of a property.Assets: Items owned by an individual or group that have financial value, such as a house or investments. Bank of Canada Rate: The minimum rate charged by the Bank of Canada for advances to the Chartered Banks. It is usually 25 basis points above the treasury-bill rate. Bank rate: The minimum rate at which the Bank of Canada makes short-term advances to the Chartered Banks and other members of the Canadian Payments Association. Since 1980, the bank rate has been set at one-quarter of 1% (25 basis points) above the weekly average tender rate of 91-day Government of Canada Treasury Bills. Basis point: One basis point is one-hundredth of one percentage point (0.01%). For example, an interest rate that changed from 5.67% to 6.57% moved up by 90 basis points. Blended rate mortgage: A mortgage that combines the amount the borrower owes under an existing mortgage with additional mortgage money required by the borrower. The interest rate for the new amount borrowed is a "blend" of the interest rate of the old mortgage and the interest rate for the additional amount to be borrowed. Bridge financing: A short term loan made to "bridge" the time gap between completing the purchase of one property and finalizing arrangements to pay for it, typically the selling of another property. The need often results from mismatched closing dates. Carrying costs: The expenses of living in and maintaining a property. This includes mortgage payments, property taxes, heating, repairs, maintenance fees, etc. Closing date: The date the sale of a property becomes final and the new owner takes possession. CMHC: CMHC is an acronym for Canada Mortgage and Housing Corporation, a federal crown corporation that administers the National Housing Act and provides mortgage insurance for high-ratio mortgages. Collateral: Assets that you pledge as security for a debt. For a mortgage, the property is the collateral. Co-mortgagor: A person who signs a mortgage contract with another party or parties and is thereby jointly obligated to repay the loan. Generally a co-mortgagor provides some financial assistance in meeting the requirements of the loan and receives a share of ownership in the encumbered property. Contingent liability: A potential liability that may be incurred depending on the outcome of a future event, such as a law suit or court case. Covenanter (or guarantor): A covenanter agrees to repay a debt incurred by another person or company to a lender if that person or company cannot or will not pay their indebtedness. Convertible mortgage:>/b> A mortgage that may be prepaid or changed to another term at any time. Credit bureau: A private organization that maintains consumer credit data files. A credit bureau provides credit information to authorized users for a fee. Credit rating: Formal evaluation of an individual's or a company's credit history and capability of repaying obligations. Current market value: The price at which of a property or other asset will sell within a reasonable period of time. Current yield: The annual rate of return on any investment, usually expressed as a percentage. Deed: A legal document, signed by the seller, that transfers and evidences ownership of the property to the buyer. Default: Failure of a debtor to make payments of interest and principal as they come due or to meet some other provision of a mortgage, loan or other contract. Deposit: A sum of cash that must be paid to the vendor by the purchaser. This money is a symbol of the purchaser's commitment to buy. If the offer is accepted, the deposit is applied to the down payment. Equity: The fair market value of a property in excess of any debts against it. For example, the equity in a home is the appraised value less the amount of the mortgage. First mortgage: A mortgage that is registered first against the property. This mortgage has to be paid first in the event of sale or default. Foreclosure: The process of termination of all rights of a mortgagor in the property covered by a mortgage. The property is usually sold to pay the outstanding debt. Guarantor (or covenanter): A guarantor agrees to repay a debt incurred by another person or company to a lender if that person or company cannot or will not pay their indebtedness. High-ratio mortgage: A mortgage that exceeds 75% of either or both a property's appraised value and purchase price. A high ratio mortgage must be insured against default by CMHC or Genworth Financial. Home insurance: Insurance to cover both your home and its contents. Inspection: The process of having a qualified home inspector identify potential repairs to the property you are interested in and their estimated cost. Interest: Interest is the amount charged by a lender to a borrower for the use of money. Interest rates are usually expressed as an annual percentage. Land transfer tax: A tax that is levied (in some provinces) on any property that changes hands. First time buyers may get a refund of some or all of the Land Transfer Tax. Legal fees and disbursements: Some of the legal costs associated with the sale or purchase of a property. It's best to engage the services of a real estate lawyer or a notary. Liabilities: A broadly defined term implying legal or financial responsibilities to others, such as a bank or credit card company. Lien: A charge against property of another as security for the payment of a debt, judgment, mortgage or taxes. A specific lien is against a certain property only. A general lien is against all the property owned by the debtor. Loan-to-value ratio: The ratio of monies borrowed for the purchase of an asset to the fair market value of the asset, usually in reference to real property. Lump sum payment: An extra payment that you make to reduce the amount of your mortgage. Maturity date: The last day of the term of your mortgage agreement. The mortgage must be paid in full, or the agreement renewed, by this date. Mortgage disability insurance: Insurance that pays your mortgage payments should you become ill or disabled and unable to work. Mortgage life insurance: A type of life insurance often bought by mortgagors. The amount of coverage decreases as the mortgage balance declines. In the event the mortgagor dies while the policy is in force, the mortgage is paid from the insurance proceeds. Mortgage payment: The regular instalments made towards paying back the principal and interest on a mortgage. Mortgage rate: The percentage interest that you pay on top of the mortgage principal. For example, you may take out a mortgage of $200,000 at a rate of 7%. Your monthly payments will consist of a portion of the original $200,000, plus 7% interest. Mortgagee: An institution, or sometimes an individual, who holds a mortgage against a piece of property as security for a loan. Mortgagor: A person who has offered a mortgage on their property in exchange for money. Multiple Listing Service® (MLS®): A co-operative marketing system through which properties are bought and sold. Net worth: The amount by which your total assets exceed your total liabilities. Porting: Transferring an existing mortgage from one home to a new home when you move. This is known as a "portable" mortgage. Pre-approved mortgage: A mortgage for a maximum monetary amount and interest rate that is arranged prior to the purchaser finding a property. With it you can confidently shop for a home, know how much you can spend and become a more attractive buyer - the seller knows you’re serious! Principal: The face amount of a loan, exclusive of interest, according to the terms of the note securing the obligation. PIT: An acronym for principal, interest, and taxes. Refinance: The act of arranging a new mortgage for an increased amount. The old mortgage is paid off, or discharged, from the proceeds of the new loan. Renewal: When the term of your mortgage expires, you have the option of renewing it with the original lender. Return: The earnings on your investment, such as interest income, dividend income or capital gains. Sales taxes: Taxes applied to the purchase cost of a property. Some properties are sales tax exempt (GST and/or PST), and some are not. For instance, residential resale properties are usually GST exempt, while new properties require GST. Security: Property, or assets, offered as backing for a loan. In the case of mortgages, the property being purchased or refinanced forms the security for the loan. Title: The right to the possession of land or property. Vendor: The seller in a real estate transaction. . This information is provided by the London and St. Thomas Association of REALTORS®. The information herein is believed to be accurate and timely, but no warranty as such is expressed or implied. |
London and St. Thomas Association of REALTORS®, 342 Commissioners Rd.W., London, Ontario. N6J 1Y3 - Phone 519-641-1400 - Fax 519-641-4613
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