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X
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Z
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Acceleration Clause:
A provision in
a mortgage that gives the lender the
right to demand payment of the entire
principal balance if a monthly payment
is missed.
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Acceptance:
An offeree's
consent to enter into a contract and be
bound by the terms of the offer.
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Adjustable-rate Mortgage (ARM):
A
mortgage that permits the lender to
adjust its interest rate periodically on
the basis of changes in a specified
index
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Adjustment Date:
The date on
which the interest rate changes for an
adjustable-rate mortgage
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Adjustment Period:
The period that
elapses between the adjustment dates for
an adjustable-rate mortgage.
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Adjustments on Closing:
There are two types of
adjustments for which a buyer can be
charged on closing;
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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. For example, if the
sellers have paid the property taxes
to the end of the year, and the sale
closes on October 15th, the purchasers
will be charged with an adjustment of
77 / 365'ths (the number of days
remaining in the year) of the total
paid for the year.
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Interest. This is the amount
of interest required to be prepaid up
to the Interest Adjustment Date (IAD).
IAD is the point at which the mortgage
interest starts accumulating "in
arrears". In Canada all mortgage
interest is calculated and paid after
the period to which it applies. This
differs from the way in which rental
and lease payments are calculated,
which is "in advance". The good news
on this one is that if you prepay for
say 3 weeks you won't have to make
your first payment for almost two
months. Also, if you take a biweekly
payment term, the longest interest
adjustment period is less than two
weeks, by definition.
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Amortization:
Number of fixed
payments or years it takes to repay the
entire amount of the mortgage loan.
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Amortization Schedule:
A timetable for
payment of a mortgage loan. An
amortization schedule shows the amount
of each payment applied to interest and
principal and shows the remaining
balance after each payment is made.
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Appraisal:
A written
analysis of the estimated value of a
property prepared by a qualified
appraiser.
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Appraised Value:
An opinion of a
property's fair market value, based on
an appraiser's knowledge, experience,
and analysis of the property.
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Appreciation:
An increase in
the value of a property due to changes
in market conditions or other causes.
The opposite of depreciation.
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Assessed
Value:
The valuation
placed on property by a public tax
assessor for purposes of taxation.
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Asset:
Anything of monetary value that is owned
by a person. Assets include real
property, personal property, and
enforceable claims against others
(including bank accounts, stocks, mutual
funds, and so on).
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Assignment:
The transfer of
a mortgage from one person to another.
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Assumable
Mortgage: A mortgage
which a qualified buyer can take over
from the current owner of a property
upon its sale. Assuming a mortgage can
provide a buyer with a below market
interest rate, (if rates are now
higher), as well as saving on the legal
costs of creating and registering a
whole new mortgage. "Assumption" entails
a simple amendment to the mortgage
document registered on title.
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Assumption Agreement:
A legal
document signed by a home buyer which
requires the buyer to assume
responsibility for the obligations of a
mortgage made by a former owner.
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Bi-weekly Accelerated Payments:
Payments
are exactly half of a monthly payment
amount, collected every two weeks, on
the same day of the week. More
aggressive than semi-monthly.
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Bi-weekly Payments:
A mortgage that
requires payments to reduce the debt
every two weeks (instead of the standard
monthly payment schedule). The 26 (or
possibly 27) biweekly payments are each
equal to one-half of the monthly payment
that would be required if the loan were
a standard 25-year fixed-rate mortgage.
The result for the borrower is a
substantial savings in interest.
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Blend and Extend:
A closed mortgage can
often be "opened" for the purpose of
extending the term. Most lenders will
blend the penalty for breaking with the
rate for the new extended term. The idea
is to get a lower rate and protect
against rate increases in the future.
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Blended
Payments:
Equal payments
consisting of both a principal and an
interest component, paid each month
during the term of the mortgage. The
principal portion increases each month,
while the interest portion decreases,
but the total monthly payment does not
change.
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Building
Code:
Local
regulations that control design,
construction, and materials used in
construction. Building codes are based
on safety and health standards.
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Buy-Down:
"Paying down" the
mortgage rate by paying the lender a
premium at time of funding. This is
often used as a marketing feature by new
home builders, particularly on high
ratio second mortgages.
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Buyer's Agent:
A Realtor who acts
contractually on behalf of the buyer.
Traditionally, and still in most cases,
the Realtor is the Agent of the Sellers
and is paid by them 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. The
seller still pays the Buyer's Agent
fees, but this is always spelled out and
acknowledged in the Offer to Purchase.
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Cap:
A
provision of an adjustable-rate mortgage
that limits how much the interest rate
or mortgage payments may increase or
decrease.
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Capital
Expenditure:
The cost of an
improvement made to extend the useful
life of a property or to add to its
value.
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Capital
Improvement:
Any structure
or component erected as a permanent
improvement to real property that adds
to its value and useful life.
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Certificate of Title:
A statement
provided by an abstract company, title
company, or attorney stating that the
title to real estate is legally held by
the current owner.
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Chattel:
Another name
for personal property.
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Closed
Mortgage: A mortgage
that cannot be prepaid or renegotiated
before the term's end unless the lender
agrees and the borrower is willing to
pay an interest penalty. Many closed
mortgages limit prepayment options such
as increasing your mortgage payment or
lump sum prepayment (usually up to 20%
of your original principal amount).
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Closing: The final
exchange of consideration and legal
completion of a transaction, involving
either a house purchase, a mortgage
registration, or both.
Also called "settlement."
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Closing
Costs:
Expenses (over
and above the price of the property)
incurred by buyers and sellers in
transferring ownership of a property.
Closing costs normally include an
origination fee, an attorney's fee,
taxes, an amount placed in escrow, and
charges for obtaining title insurance
and a survey. Closing costs percentage
will vary according to the area of the
country; lenders or realtors often
provide estimates of closing costs to
prospective homebuyers.
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Closing
Date: The date at which the sale of
a property becomes final and the new
owner takes possession.
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Commission:
The fee charged
by a broker or agent for negotiating a
real estate or loan transaction. A
commission is generally a percentage of
the price of the property or loan.
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Commitment Letter/Mortgage Approval:
Written notification from the mortgage
lender to the borrower that approves the
advancement of a specified amount of
mortgage funds under specified
conditions.
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Compound
Interest:
Interest paid
on the original principal balance and on
the accrued and unpaid interest.
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Conditional Offer: An
Offer to Purchase that is subject to
specified conditions, for example, the
arrangement of a mortgage. There is
usually a stipulated time limit within
which the specified conditions must be
met.
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Condominium:
A real estate
project in which each unit owner has
title to a unit in a building, an
undivided interest in the common areas
of the project, and sometimes the
exclusive use of certain limited common
areas
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Contingency:
A condition
that must be met before a contract is
legally binding. For example, home
purchasers often include a contingency
that specifies that the contract is not
binding until the purchaser obtains a
satisfactory home inspection report from
a qualified home inspector.
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Conventional Mortgage: A
mortgage loan up to a maximum of 80% of
the lending value of the property.
Typically, the lending value is the
lesser of the purchase price and market
value of the property. Mortgage loan
insurance is usually not required for
this type of mortgage.
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Convertible Mortgage:
A provision in
some adjustable-rate mortgages (ARMs)
that allows the borrower to change the
ARM to a fixed-rate mortgage at
specified timeframes after loan
origination.
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Counteroffer: If your original
offer to the vendor is not accepted, the
vendor may counteroffer. This means that
the vendor has amended something from
your original offer, such as the price
or closing date. If a counteroffer is
presented, the individual has a
specified amount of time to accept or
reject.
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Credit
Report: The main report a
lender uses to determine your
creditworthiness. It includes
information about your ability to handle
your debt obligations and your current
outstanding obligations.
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Curb
Appeal: How attractive the
home looks from the street. The first
impression you have of a home is
important. A home with good curb appeal
will have attractive landscaping and a
well-maintained exterior.
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Debt-service Ratio:
The percentage
of the borrower's gross income that will
be used for monthly payments of
principal, interest, taxes, space
heating costs and condominium fees.
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Deed:
A legal document that is signed by both
the vendor and purchaser, transferring
ownership. This document is registered
as evidence of ownership.
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Default:
Failure to abide by the terms of a
mortgage loan agreement. A failure to
make mortgage payments (defaulting the
loan) may give cause to the mortgage
holder to take legal action to possess
(foreclose) the mortgaged property.
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Delinquency:
Failing to make a mortgage payment
on time.
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Deposit:
Money placed in trust by the purchaser
when an Offer to Purchase is made. The
sum is held by the real estate
representative or lawyer/notary until
the sale is closed and then it is paid
to the vendor.
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Depreciation:
A decline in
the value of property; the opposite of
appreciation.
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Discharge:
The removal of
a mortgage or financial encumbrance from
a property.
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Double-Up:
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.
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Down
Payment:
The part of the
purchase price of a property that the
buyer pays in cash and does not finance
with a mortgage.
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Easement:
A right of way
giving persons other than the owner
access to or over a property.
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Effective Interest Rate:
The real rate
of interest after the effects of
compounding are included. More frequent
compounding adds up to a higher
effective rate.
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Encroachment:
An improvement
that intrudes illegally on another's
property.
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Encumbrance:
Anything that
affects or limits the free simple title
to a property, such as mortgages,
leases, easements, or restrictions.
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Equity:
The difference between the price for
which a home could be sold and the total
debts registered against it. Equity
usually increases as the mortgage is
reduced through regular payments. Market
values and improvements to the property
may also affect equity.
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Escrow:
An
item of value, money, or documents
deposited with a third party to be
delivered upon the fulfillment of a
condition. For example, the deposit by a
borrower with the lender of funds to pay
taxes and insurance premiums when they
become due, or the deposit of funds or
documents with an attorney or escrow
agent to be disbursed upon the closing
of a sale of real estate.
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Estoppel
Certificate: Also called a
certificate of status, it is a
certificate that outlines a condominium
corporation's financial and legal state.
Fees may vary and may be capped by law
(does not apply in Quebec).
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Examination of Title:
The report on
the title of a property from the public
records or an abstract of the title.
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Exclusive Listing:
A written
contract that gives a licensed real
estate agent the exclusive right to sell
a property for a specified time, but
reserving the owner's right to sell the
property alone without the payment of a
commission.
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Fair
Market Value:
The highest
price that a buyer, willing but not
compelled to buy, would pay, and the
lowest a seller, willing but not
compelled to sell, would accept.
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Firm
Commitment:
A lender's
agreement to make a loan to a specific
borrower on a specific property.
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First
Mortgage:
A mortgage that
is the primary lien against a 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.
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Fixed
Instalment:
The monthly
payment due on a mortgage loan. The
fixed instalment includes payment of
both principal and interest.
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Fixed-rate Mortgage (FRM):
A mortgage in
which the interest rate does not change
during the entire term of the loan.
See also Variable Rate
Mortgages.
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Fixture:
Personal
property that becomes real property when
attached in a permanent manner to real
estate.
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Flood
Insurance:
Insurance that
compensates for physical property damage
resulting from flooding. It is required
for properties located in federally
designated flood areas.
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Foreclosure:
The legal
process by which a borrower in default
under a mortgage is deprived of his or
her interest in the mortgaged property.
This usually involves a forced sale of
the property at public auction with the
proceeds of the sale being applied to
the mortgage debt
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Gross
Debt Service Ratio (GDS): The
percentage of the borrower's gross
monthly income that will be used for
monthly payments of principal, interest,
taxes and heating costs (P.I.T.H.) and
half of any condominium maintenance
fees.
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Hedge:
A fairly complex money market instrument
the simple purpose of which is
essentially to insure a mortgage lender
(or borrower, through a protected or
split-term mortgage) against interest
rate movements. In the lender's case the
price of this insurance will vary
depending upon many political and
economic factors, but will generally be
lower when interest rates and the
economy are less volatile. The buyer on
the other hand can hedge at no cost, or
at a reasonable rate premium by using
specifically designed products.
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High-Ratio Mortgage: A mortgage
loan higher than 80% of the lending
value of the property. This type of
mortgage may have to be insured — for
example by CMHC or a private
company — against payment default.
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Home
Equity Line of Credit (HELOC):
A mortgage
loan, which is usually in second
position, that allows the borrower to
obtain multiple advances of the loan
proceeds at his or her own discretion,
up to a maximum amount. Although,
registered as a mortgage against your
property HELOC's typically offer all of
the flexibility and benefits of a line
of credit, but at a lower interest rate,
and often with smaller payment
requirements.
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Home
Inspection:
A thorough
inspection that evaluates the structural
and mechanical condition of a property.
A satisfactory home inspection is often
included as a contingency by the
purchaser. Contrast with appraisal.
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Income
Property:
Real estate
developed or improved to produce income.
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Initial
Interest Rate:
The original
interest rate of the mortgage at the
time of closing. This rate changes for
an adjustable-rate mortgage (ARM).
Sometimes known as "start rate" or
"teaser."
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Instalment:
The regular
periodic payment that a borrower agrees
to make to a lender.
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Interest:
The cost of borrowing money. Interest is
usually paid to the lender in regular
payments along with repayment of the
principal (loan amount).
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Interest
Adjustment Date (IAD): A date
from which the accrued interest on the
mortgage advance is calculated and paid
in your first regular payment. This date
is usually one payment period before the
first regular mortgage payments begin.
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Interest Rate
Differential:
A penalty for early
prepayment of all or part of a mortgage
outside of its normal prepayment terms.
This is usually 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".
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Joint
Tenancy:
A form of
co-ownership that gives each tenant
equal interest and equal rights in the
property, including the right of
survivorship.
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Land Transfer Tax (LTT):
A tax payable to the
Provincial Government by the purchaser
upon the transfer of title from a
seller. In Ontario a simple formula
applies:
- One
half percent (0.5%) on the first
$55,000 (minimum $275).
- One
percent (1.0%) on the next $195,000
($55 - 250,000).
- One
and a half percent (1.5%) on amounts
over $250,000.
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Lease:
A
written agreement between the property
owner and a tenant that stipulates the
conditions under which the tenant may
possess the real estate for a specified
period of time and rent.
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Lien:
A
legal claim against a property that must
be paid off when the property is sold.
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Line of
Credit:
An agreement by
a commercial bank or other financial
institution to extend credit up to a
certain amount for a certain time to a
specified borrower.
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Loan-to-Value Ratio: The ratio of
the loan amount to the lending value of
a property expressed as a percentage.
For example, the loan-to-value ratio of
a loan for $90,000 on a home which costs
$100,000 is 90%.
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Lock-in:
A written
agreement in which the lender guarantees
a specified interest rate if a mortgage
goes to closing within a set period of
time. The lock-in also usually specifies
the number of points to be paid at
closing.
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Lock-in
Period:
The time period
during which the lender has guaranteed
an interest rate to a borrower.
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Lump Sum
Prepayment: An extra payment,
made in lump sum, to reduce the
principal balance of your mortgage, with
or without penalty. A closed mortgage
typically restricts the amount and
frequency of the prepayments you can
make. With an open mortgage, however,
you can make a lump sum prepayment at
any time without penalty. Making
prepayments can help you pay off your
mortgage sooner and ultimately save on
interest costs over the life of your
mortgage.
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Margin:
For
an adjustable-rate mortgage (ARM), the
amount that is added to the index to
establish the interest rate on each
adjustment date, subject to any
limitations on the interest rate change.
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Maturity
Date: The last day of the term
of the mortgage. On this day, the
mortgage loan must either be paid in
full or the agreement renewed.
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MLS —
Multiple Listing Service: A
multiple listing service is a real
estate agents' cooperative service that
contains descriptions of most of the
homes that are for sale. Real estate
agents use this computer-based service
to keep up with properties they are
listing for sale in their area.
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Mortgage:
A mortgage is a security for a loan on
the property you own. It is repaid in
regular mortgage payments, which are
usually blended payments. This means
that the payment includes the principal
(amount borrowed) plus the interest (the
charge for borrowing money). The payment
may also include a portion of the
property taxes.
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Mortgage Broker:
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 arrange
financing for "A+" clients as well as
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.
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Mortgage
Insurance Premium:
A 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.
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Mortgage
Life Insurance: Mortgage life
insurance provides coverage for your
family should you die before your
mortgage is paid off. This insurance can
be purchased through your lender and the
premium added to your mortgage payments.
However, you may want to compare rates
for equivalent products from an
insurance broker.
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Mortgage
Loan Insurance: If you have a
high-ratio mortgage (more than 80% of
the lending value of the property) your
lender will probably require mortgage
loan insurance.
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Mortgage
Payment: A regularly scheduled
payment that is often blended to include
both principal and interest.
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Mortgagee:
The lender.
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Mortgagor:
The borrower.
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Municipal Levies:
Special levies can be
charged by municipalities to recover the
cost of special services, if these
services cannot, for some reason, be
funded out of general revenues, or apply
primarily to homebuyers. Examples: Water
meter installation; road improvements,
sewer improvements.
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Negative
Amortization:
A gradual
increase in mortgage debt that occurs
when the monthly payment is not large
enough to cover the entire principal and
interest due. The amount of the
shortfall is added to the remaining
balance to create "negative"
amortization.
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Net
Worth: Your financial worth,
calculated by subtracting your total
liabilities from your total assets.
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New Home
Warranty Program: A guarantee that
if something covered under the warranty
needs to be repaired it will be. If the
builder doesn't repair it, the repair
will be made by the organization that
provided the warranty. All provinces and
Yukon Territory have New Home Warranty
programs for newly built homes. However,
there are currently no such programs in
Nunavut or the Northwest Territories.
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Notice
of Default:
A formal
written notice to a borrower that a
default has occurred and that legal
action may be taken.
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No Money Down/No Down
Payment:
Due to new government rules and
regulations some of these programs may
be changed and/or discontinued in
October 2008.
Mortgage financing options that provide
you with financing to cover the complete
purchase price of a property, so you
require no down payment. These
options are typically reserved for
clients with excellent credit and
repayment histories. Some programs
do become available from time to time
for clients who have had slower
repayment histories or poorer credit,
but keep in mind, they are priced
according to the lender's risk.
There are currently 3 programs in Canada
which enable you to do this:
-
100%
Financing: The mortgage
lender provides you with a mortgage
for the full purchase price of the
property. Fees or insurance
premiums are usually added on to your
mortgage principal, so it is possible
to have a mortgage for more than the
value of the property.
-
5% Cash
Back Down Payment:
Down
payment is provided from the lender by
way of 5% cash back provided to your
lawyer on the day of closing of
closing.
-
Flex
Down: This option allows clients
with strong credit to borrow their
down payment from a source other than
the mortgage lender, such as a line of
credit or even a credit card.
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Offer to
Purchase: A written contract
setting out the terms under which the
buyer agrees to buy the home. If the
Offer to Purchase is accepted by the
seller, it forms a legally binding
contract that binds those who have
signed it to certain terms and
conditions.
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Open
Mortgage:
A mortgage that can be prepaid or
paid off or renegotiated at any time and
in any amount without interest penalty.
The interest rate on an open mortgage is
usually higher than a closed mortgage
with an equivalent term.
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Operating
Costs: The expenses that a
homeowner has each month to operate a
home. These include property taxes,
property insurance, utilities, telephone
and communications charges, maintenance
and repairs.
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Original
Principal Balance:
The total
amount of principal owed on a mortgage
before any payments are made.
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Origination Fee:
A fee paid to a
lender for processing a loan
application.
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Owner
Financing:
A property
purchase transaction in which the
property seller provides all or part of
the financing.
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P.I.
(Principal & Interest):
Principal and
interest due on a mortgage.
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P.I.T.H.:
Principal, interest, taxes and heating —
costs used to calculate the Gross Debt
Service ratio (GDS).
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Payment
Change Date:
The date when a
new monthly payment amount takes effect
on an adjustable-rate mortgage (ARM).
Generally, the payment change date
occurs in the month immediately after
the adjustment date.
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Penalty:
A sum of money
paid to a lender for the privilege of
prepaying a mortgage in part or in full.
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Portable Mortgage:
A mortgage which allows
you to transfer the existing amount and
terms of your mortgage over to a new
property without penalty. The mortgage
will, of course, have to be registered
on title of the new property, so
strictly speaking it is not identical in
all respects. While most mortgages have
a portability feature, in the event you
might need more money when you transfer
the mortgage over to the new property,
make sure you either have the right to
blend in any new funds required, or can
arrange the additional funds separately.
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Pre-approved Mortgage:
Preliminary
approval by the lender of the borrower's
application for a mortgage to a certain
maximum amount and rate.
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Pre-qualification:
The process of
determining how much money a prospective
home buyer will be eligible to borrow
before he or she applies for a loan.
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Prepayment:
Any amount paid
to reduce the principal balance of a
loan before the due date. Payment in
full on a mortgage that may result from
a sale of the property, the owner's
decision to pay off the loan in full, or
a foreclosure. In each case, prepayment
means payment occurs before the loan has
been fully amortized.
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Prepayment Option:
The right to
prepay specified amounts of the
principal balance. Penalty interest may
be incurred on prepayment options.
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Prepayment Penalty:
A fee that may
be charged to a borrower who pays off a
loan before it is due.
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Prime
Rate:
The interest
rate that banks charge to their
preferred customers. Changes in the
prime rate influence changes in other
rates, including mortgage interest
rates.
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Principal: The amount that you
borrow for a loan. Each monthly mortgage
payment consists of a portion of the
principal that must be repaid plus the
interest that the lender is charging you
on the outstanding loan balance. During
the early years of your mortgage, the
interest portion is usually larger than
the principal portion.
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Property
Insurance: Insurance that you buy
for the building(s) on the land you own.
This insurance should be high enough to
pay for the building to be re-built if
it is destroyed by fire or other hazards
listed in the policy.
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Property
Taxes: Taxes charged by the
municipality where the home is located
based on the value of home. In some
cases the lender will collect a monthly
amount to cover your property taxes,
which is then paid by the lender to the
municipality on your behalf.
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Purchase
and Sale Agreement:
A written
contract signed by the buyer and seller
stating the terms and conditions under
which a property will be sold
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Purchase Plus
Improvements: This mortgage
option enables you to be approved not
only for the purchase of your property,
but also for additional monies to cover
the cost of improvements you are
planning to make as soon as you take
possession. You will typically
require contractors quotes to determine
the value of the work to be completed.
On the closing day, you will receive the
funds required to purchase the property,
the funds for the improvements will be
released to you only after the lender
has confirmation that the work has been
completed.
This is an
excellent option to ensure you will have
the funds to fix up a property before
you begin the work. Most lenders
will not lend on an unfinished property,
so be careful to ensure you have enough
money on hand, because if you run out of
money part way through a renovation you
may have a very difficult time to get or
increase a mortgage.
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Qualifying Ratios:
Calculations
that are used in determining whether a
borrower can qualify for a mortgage.
They consist of two separate
calculations: a housing expense as a
percent of income ratio and total debt
obligations as a percent of income
ratio. See Gross Debt Service Ratio.
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Quitclaim Deed:
A deed that
transfers without warranty whatever
interest or title a grantor may have at
the time the conveyance is made
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Rate
(interest):
The return the
lender receives for loaning you the
money for the mortgage.
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Recission:
The
cancellation or annulment of a
transaction or contract by the operation
of a law or by mutual consent. Borrowers
usually have the option to cancel a
refinance transaction within three
business days after it has closed.
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Refinance Transaction:
The process of
paying off your existing mortgage with the proceeds
from a new mortgage using the same property
as security. When refinancing your
mortgage you are often able to take
addition money out of your equity for
any number of reasons, such as paying
off other debt, cover the cost of
renovations, or investing.
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Registration Fees:
Fees paid to the
provincial government for recording a
title transfer, mortgage registration or
other instrument such as an Assignment
or Lien with the local authorities.
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Reserve
Fund: This amount is set aside
by the homeowner on a regular basis so
that funds are available for emergency
or major repairs. Setting aside 5% of
your monthly take-home pay will give you
a well-funded reserve.
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Right of
First Refusal:
A provision in
an agreement that requires the owner of
a property to give another party the
first opportunity to purchase or lease
the property before he or she offers it
for sale or lease to others.
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Roll-over Mortgage:
A mortgage loan
where the interest rate is established
for a specific term. At the end of this
term the mortgage is said to "roll over"
and the borrower and lender may agree to
extend to loan. If satisfactory terms
cannot be agreed upon, the lender is
entitled to be repaid in full. In this
case, the borrower may seek alternative
financing.
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Second
Mortgage:
This is usually
at a higher interest rate and represents
the difference between the price of the
house and first mortgage plus the down
payment. This may be obtained from banks
and finance companies or through lawyers
or notaries.
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Self
Employed: Lenders consider
someone self employed if they work for
themselves, or for their own company.
Even if you own a corporation and pay
yourself a salary, you will still be
treated as self employed by mortgage
lenders. The main factor which
will determine how you qualify for a
mortgage, and what type of pricing you
will receive is how provable your income
is:
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Fully
Provable Income: If you fit
this category, you will be able to
qualify for all standard mortgage
options at the best available pricing.
You will be required to provide the
lender with 2-3 years of your income
tax returns showing that you filed as
a self employed individual. You
will also need to provide 2-3 years of
your Notice of Assessments (NOAs).
The lender will use the average of
your net income (line 150) as your
proven income amount calculating how
much you can qualify for. Some
lenders do allow this amount to be
"grossed up" by a certain percentage,
or allow you to add back certain
expenses that were deducted from the
gross income, but these rules vary
greatly between lenders.
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Stated
Income: If your net income
on your NOAs is not sufficient to
qualify you for the mortgage you need,
you may be able to use a stated income
program. These programs are
offered by standard "A" lenders as
well as some alternative lenders.
Your maximum mortgage, amount of down
payment required and pricing are
determined by a combination of your
credit and repayment histories, as
well as how long you have been self
employed and what documentation you
can provide to prove that.
As these options typically allow you
to state your income at any
"reasonable" amount, you need to know
how much of a mortgage payment you can
afford.
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Low
Documentation:
These programs are typically
provided for clients with poorer
credit histories. Although,
priced accordingly they often enable
clients to be approved for higher
loan-to-values than they would have
qualified for using a Stated Income
program. You are usually
required to provide some form of
alternative documentation proving your
gross income, such as bank statements
for 1-3 years showing deposits,
sometimes items such as invoices will
be excepted, the actual gross income
is then averaged to determine the
amount of income that will be used to
qualify you for your mortgage.
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Semi-monthly Payments:
Payments are
taken twice a month, usually on the 1st
and the 15th. Payments are one half of
the monthly amount. Less aggressive at
attacking principle than a bi-weekly
payment method.
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Simple Interest:
Interest which is
computed only on the principal balance.
It is not compounded by calculating
interest payable on accrued interest.
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Survey or
Certificate of Location: A document
that shows property boundaries and
measurements, specifies the location of
buildings on the property and states
easements or encroachments.
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Switch:
This is the term almost
universally applied to changing lenders
at the end of a term, when the mortgage
matures.
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Tax Certificate:
At the time of a sale,
the lawyer for the buyer must confirm
that 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. If they 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 may fall upon the
buyer to pay them.
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Term:
In a
mortgage, "term" is the actual length of
time for which the money is loaned, at
that particular rate of interest. After
the term expires, you can either repay
the balance of the principal then owing
or renegotiate the mortgage at current
rates and conditions.
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Title:
A
legal document evidencing a person's
right to or ownership of a property.
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Title
Insurance:
Insurance that
protects the lender (lender's policy) or
the buyer (owner's policy) against loss
arising from disputes over ownership of
a property.
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Title
Search:
A check of the
title records to ensure that the seller
is the legal owner of the property and
that there are no liens or other claims
outstanding.
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Total
Debt Service Ratio (TDS): The
percentage of gross monthly income
required to cover the monthly housing
payments and all other debts, such as car
and credit card payments.
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Trustee:
A fiduciary who
holds or controls property for the
benefit of another.
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Undertaking:
This is a promise by a
Lawyer to ensure that certain conditions
(usually of the lender) are met (usually
after closing, due to time constraints).
The best example is the undertaking 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. It also
governs such closing dynamics as
releasing funds before a new mortgage
document is officially registered.
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Underwriting:
The process of
evaluating a loan application to
determine the risk involved for the
lender. Underwriting involves an
analysis of the borrower's
creditworthiness and the quality of the
property itself.
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Underwriting Fees:
A sum of money
collected by some lenders to offset
expenses incurred in the lending
transaction.
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Unsecured Loan:
A loan that is
not backed by collateral.
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Variable
Rate Mortgage (Floating Rate):
A
mortgage where payments can be fixed
from one to five years, but the interest
rate could change from month to month
depending on market conditions. If
interest rates go down, the monthly
principal is reduced; if rates go up,
the monthly payments might not cover the
interest owing and payments may be
increased for the next term. See
also Fixed Rate
Mortgages.
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Vendor
Financing (Balance of Sale):
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.
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Vendor
Take Back Mortgage: This is
where the vendor rather than a financial
institution finances the mortgage. The
title of the property is transferred to
the buyer who makes mortgage payments
directly to the seller. These types of
mortgages, sometimes referred to as
take-back mortgages, can be helpful if
you need a second mortgage to by a home.
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Weekly
Accelerated Payments:
Same as
bi-weekly accelerated. Your payments
will be one quarter of your normal
monthly payment. More aggressive than
simple weekly payments as sometimes
there are 5 weeks in the month and you
will have 5 payments in that month. This
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