ARM'S LENGTH SALE
A "Bona fide arm's length sale" is a transaction for cash (or an equivalent) for a specific property after there has been reasonable exposure in a competitive market between willing, well informed and prudent buyers & sellers where neither party is acting under duress.
ASSIGNMENT OF INTEREST
An assignment of interest in a mortgage most commonly occurs when switching a mortgage from one lending institution to another. Instead of the borrower incurring high legal costs to discharge one lender's mortgage and register documents from another, a legal assignment of mortgage is registered with the Land Titles Office. The assignment document recognizes that the debt has been legally transferred from one lender to another.
ASSUMPTION / ASSUMABLE MORTGAGE
If the Buyer of a property takes over the conditions of the Seller's mortgage (the amount owing for the remaining term at the existing rate), this is called assumption of the mortgage.
As a Buyer, you need to examine this carefully. In most cases it will work in your favour. If it is a High Ratio Mortgage is really will work in your favour as the Mortgage Insurance Premium has already been paid.
If you are considering this you need to find out the term, the interest rate, any penalties or privileges built in, the amortization period used, as well as, the current payment amount and frequency.
You must ensure that you compare this assumable mortgage to what you could get from a Lender today. Only when you can compare the two should you make a decision.
All major lending institutions insist on the buyer qualifying for the assumable mortgage, so if you would not normally qualify for a mortgage, you will not qualify to assume a mortgage either.
However, there are two reasons for allowing a Buyer to assume your mortgage:
- If the Buyer assumes your mortgage (the entire amount) your lending institution should not charge you any penalty.
- If the Real Estate Market is depressed in your area and you have a good interest rate on your mortgage, an assumable mortgage may help you to attract potential Buyers.
Should you be selling your property and your lending instutution does NOT insist on the Buyer qualifying for your mortgage, the most important thing to check is whether you will be released from the mortgage. If not you could still be liable for the debt even though you have sold the property.
BALANCE
The amount of the (loan) mortgage principal owed to a financial institution as of a specific date.
BRIDGE FINANCING / INTERIM FINANCING
Short term financing to bridge the time gap between when you have to pay the balance of money for your new home and the date you receive funds for the sale of your existing home. It is important to understand that financial institutions do not like to loan money for the short term. It costs them too much in terms of computer time and administration costs. They will and do; however, offer bridge or interim financing but they make money by charging a service fee. as well as, very often a slightly higher interest rate.
"CASH BACK" MORTGAGE
Several lending institutions offer a "cash back" incentive for choosing them as your mortgage lender.
The amount of the "cash back" is a percentage of the mortgage amount you are borrowing-as an example 3%. For example, if you borrow 200,000 you could receive as much as $6,000 back from the lender.
There are negative aspects to a "Cash Back" Mortgage:
- You may not use these funds as part of your downpayment
- You may pay the full posted rate
- Should you pay the mortgage off before the end of the term, you will have to pay the lender back some of the "cash back" money
The advantage is, you can select how to spend the cash you receive. It is prudent to discuss this option with your Mortgage Broker as he /she can work out a "Cash Back" scenario versus a lower rate mortgage. You can then decide if money now works better for you than savings in the long term.
CHATTELS
Chattels are personal property such as household possessions, furniture, vehicles and fixtures not permanently attached to the house (such as appliances).
CLEAR TITLE
Property against which no mortgages are registered.
CMHC
The Canadian Mortgage & Housing Corporation is a Crown Corporation administering the National Housing Act (NHA) for the Federal Government. CMHC is a provider of High Ratio Mortgages
COLLATERAL
An asset that can be used as security for a loan / mortgage.
COLLATERAL MORTGAGE
A mortgage or real estate that is used as security for a loan. The funds borrowed are used to buy a property or for home renovations or for a vacation. The interest rates for collatderal mortgages are often higher than normal mortgage rates. Collateral Mortgages can usually be paid off at any time with no penalty.
COMMITTMENT LETTER / MORTGAGE APPROVAL
Written notification from the mortgage lender to the borrower approving a specified amount of mortgage funds under specified conditions (example: a satisfactory appraisal of the property to be mortgaged).
COMMON AREAS
Areas designated for common usage such as the lobby, party room, pool etc. in a condominium .
CONTRACT OF PURCHASE & SALE
An Offer of Purchase & Sale is a binding contract which contains all of the terms and conditions involved in the purchase of a property. It will include the purchase price, address and legal description, occupancy details, chattels and fixtures included and excluded. Please be prudent...before you sign anything consult your lawyer.
CONVEYACE
The transfer of ownership from one person to another
CO-SIGNOR
When more than one person is borrowing money, all persons signing the mortgage contract are considered co-signors. The obligation of each person is "joint & several". This means that collectively they owe the debt but also each individual signing owes the whole amount borrowed and the whole amount of each payment.
CREDIT LINE
A credit line is often secured by a collateral mortgage as is traditionally based on a floating interest rate. You will have a maximum amount of money that you can borrow. While your balance is zero you will pay no interest. As you borrow money the lender will calculate how much interest you owe based on the daily balance. You pay the interest monthly but can decide when and how much principal you pay down from month to month.
DEED OF CONVEYANCE
A legal document transferring the ownership of a property.
DEFAULT
Non-payment of installments due under the mortgage contract. Not keeping up with your mortgage payments (or property tax payments) can eventually lead to foreclosure on the property.
DISCHARGE OF MORTGAGE
A legal document signed by the lender and given to the borrower (or borrower's lawyer) when mortgage has been paid in full. Do NOT destroy this document if you are celebrating the end of the payments.
EASEMENT
The right to access to or over or use of another person's land for a specific reason - such as a driveway or a public utility.
ENCUMBERANCE
A claim for money owing, registered against a property...such as a mortgage.
EQUITY
The remining value in your property after all mortgages and loans registered against title are subtracted from it's appraised value.
EXPROPRIATION
When the federal government, local government or local school board forces the owner of a property to transfer all or part of their property to them. By expropriating the property, the government or school board must pay compensation for taking the land. Should the parties involved not be able to agree on a fair price there is a provision for arbitration or judicial proceedings to determine the amount to be paid.
FORECLOSING
The process whereby a lender takes over legal ownership of property because of non-payment of the mortgage. The legal process for a foreclosure can take months. If you are having financial problems and want to know your legal position, you should consult your lawyer.
GUARANTOR
A person who promised the lender that he /she will repay a debt if the principal borrower defaults.
Because someone is willing to be a guarantor does not necessarily mean that the mortgage will automatically be approved. The guarantor becomes part of the mortgage application / approval process. The guarantor will have to disclose his /her assets, liabilities, income and have a credit check completed. The total package of information is what the lender looks at to decide the worthiness of the guarantor.
Once approved, the guarantor will have to sign the mortgage documents, showing his /her obligation to the lender. A guarantee is a secondary obligation arising only on default by the primary borrower. The Lender has no rights against the quarantor until the primar borrower defaults. As soon as, the primary debtor defaults on even one payment, the lender may request payment from the guarantor. The lender does not have to notify the guarantor of the default before starting an action to enforce the guarantee.
It is prudent to seek the advice of a lawyer when you are onsidering becoming a guarantor for someone.
HOLDBACK
This is an amount of funds withheld by a lending institution (or possibly your lawyer) during the construction of a house. This ensures that construction is progressing satisfactorily at each stage. The amount of the holdback is usually equivalent to the cost to complete the construction plus any amount required by law to satisfy the lien holdback (usually 10% of the construction costs)
INSURANCE
There are several types of insurance and it is important when discussing insurance that you know which one you are referring to. The three main types relative to home ownership are: Life Insurance, Home Insurance and Hi-Ratio Insurance.
INTER ALIA MORTGAGES
When a mortgage is secured by more than one property. A single mortgage document is registered covering all properties used as collateral.
INTEREST
The cost of borrowing money. Interest is charged on the outstanding amount of the mortgage.
INTEREST ADJUSTMENT DATE
Is the date from when your lending institution advances funds to your lawyer and the date when you first make a payment. Please refer to the example below:
- You are buying a house that closes on July 31st
- The lender advances the funds to your lawyer on July 31st
- You have elected to make monthly payments on the 15th of every month
- Your interest adjustment date is August 15th
- On this date your institution will collect the interest amount owing since they disbursed the money to your lawyer
INTEREST ONLY MORTGAGES
Credit lines amd equity access mortgages are usually "interest Only". The lender will require you to pay the interest owing on a monthly basis; however, payments reducing the balance owing are controlled by the borrower.
INTEREST RATES
Is the percentage of interest charged on a mortgage and is traditionally compounded "semi-annually, not in advance". The interest is calculated twice a year and added to the principal owing then payments are subtracted. Not in advance refers to the payment being collected at the end of a time period. If you are paying a mortgage, the September 1st payment pays for the previous month of August. Your financial institution is required by law to indicate the "equivalent" semi-annual interest rate.
JOINT TENANCY
This is when real estate property is owned in the names of more than one person and each has an undivided share. In the event of the death of one person, ownership automatically passes to the other(s).
LAND PURCHASE
The purchase of land with no structures on it...bare land. Lenders usually loan funds with a collateral mortgage unless a house (or other residential property) is to be built immediately.
LEGAL DESCRIPTION
The formal identification of each division of property...the legal address.
LENDER / LENDING INSTITUTION
Any financial institution lending money for the purpose of buying property. It includes major banks, smaller banks, foreign banks, credit unions, trust companies, private lenders, etc.
LENDING VALUE
The lower pf the purchase price or appraised value of a property.
LIEN
A claim registered against the title of a property for money owing. A lien must be properly filed by the claimant and has a limited life, which varies by province. As long as a lienholder takes action within the prescribed time period the homeowner may be obliged to pay the amount claimed by the lienholder. The lienholder can force the sale of the property to pay off the debt.
LIFE INSURANCE
Most of the major lenders will offer you their insurance policy to cover the mortgage. It would be prudent to check the rates and terms of the policy offered from the lender versus those of an insurance company. A few issues you need to check...How much of the mortgage is covered? What would a payout cover? Can you transfer your mortgage and still be covered?
LOAN TO VALUE
The ratio between the mortgage amount and the value of the property, usually expressed as a percentage.
- Purchase Price is $400,000
- Mortgage is $280,000
- Your Loan To Value is 70%
MARKET VALUE
The amount that a Buyer is willing to pay for a property.
MATURITY DATE
The last day of the term of the mortgage contract. On or before this date the mortgage must be repaid in full, renewed with the present lender or switched to another lender.
MORTGAGE
Money borrowed from a lender to buy property. The lender registers the mortgage contract (the debt) against the property to ensure the money is repaid. Should the mortgage payments not be made, the lender can start foreclosure proceedings.
MORTGAGE CONTRACT / MORTGAGE DOCUMENT
The mortgage document is a legal contract that outlines the terms and conditions for repaying the money borrowed.
MORTGAGE RATE BUYDOWN
Some lending institutions will allow a buydown of the mortgage interest rate. A lump sum of the money is paid to the institution up front, in order to lower the mortgage rate for the remainder of the term.
MORTGAGEE
the lender of the mortgage funds.
MORTGAGOR
The borrower of the mortgage funds.
P & I / PIT / PITH
- P & I...Principal & Interest
- PIT...Principal, Taxes & Interest
- PITH...Principal, Interest, Taxes & Heating
PAYMENT - INTEREST ONLY
Some mortgages are interest only. These are usually lines of credit secured by a collateral mortgage. Interest rates float...increase or decrease with the lender's prime rate.
PAYMENT - PRINCIPAL & INTEREST
The majority of mortgage funds borrowed to purchase property are repaid with monthly payments. Each payment is made up of interest and a portion of the principal. The amount of interest paid is calculated on the balance owing, so each successive payment consists of a smaller amount of interest and the greater amount of principal.
PAYMENT IN FULL
If a lending institution requests "payment in full" they want you to pay them the principal and interest owing to them on a specific date.
PERSONAL COVENANT
When funds are borrowed in the name of a company, the owners or directors will usually be asked for their "personal covenant". If the company defaults on the mortgage, the lender has the right to sue the individuals who have given their covenant.
POSTED RATES
The interest rates that the banks post at the start of every day. The financial institutions advertise their posted rates...usually both lending and deposit.
PREPAYMENT CLAUSE
Part of the Mortgage Contract that outlines whether you are allowed to pay-off all or part of your mortgage (over and above your normal payments) prior to the maturity date. This section should also explain if there are any penalties for paying extra and how the penalties are calculated. Be sure to pay attention to how the penalty is calculated as this can make a huge $ difference.
PRIME RATE
A Bank rate based on the Bank of Canada's prime interest rate
PRINCIPAL
The amount of money borrowed or the amount outstanding at any point in time.
PRIVATE MORTGAGES
Money lent to a borrower from private sources usually at higher than normal interest rates secured by a mortgage on the property. Borrowers requiring private mortgages often have credit issues that hamper obtaining normal funding.
PRIVATE SALE / FOR SALE BY OWNER
Buying a property not through the use of a REALTOR®
PROPERTY TAXES
Property taxes are paid to all municipalities for all properties. The lender, in some cases, will insisit on collecting an amount from you for the property taxes. This is frequently done for high-ratio mortgages.
SECOND MORTGAGE
A mortgage that is legally registered against a property that already has a mortgage. It is second due to the date and tine that the mortgage document is registered at the Land Titles Office. Should a lender proceed with foreclosure the taxes and first mortgage are paid out before the second mortgage....it is second priority.
STRATA
Also called a condominium...ownership that is shared among many owners...where each has individual unit ownership and joint ownership of the common elements.
STRATA FEES
Also known as maintenance fees. Collected from all owners to cover the costs of the common areas, repairs, upkeep, maintenance & reserve fund fees.
TENANTS IN COMMON
When two or more people own a property together. The shares do not need to be equal and should one party die, their portion is willed away, it does not automatically pass to the other owner(s).
TITLE
Title proves ownership of the property.
Freehold title gives the holder full ownership of the land and buildings for an indefinate time period.
Leasehoild title gives the holder a right to use and occupy the land and building for a defined period of time.
UNDERWRITING
Lending Institutions agree to accept the risk of your mortgage by underwriting the amount they are lending. The lender assesses your credit history, income & debts and decides whether or not to lend you the money. In exchange for lending you the money they will register a mortgage against your property.
VENDOR TAKE BACK MORTGAGE
Financing is arranged between a seller and a buyer. Title is transferred to the buyer; however, the seller has agreed to extend funds to the buyer in order for the buyer to have sufficient funds to close the deal. Usually these VTB mortgages are non-transferable or non-renewable.
WATER POTABILITY
Water potability refers to the drinkability and the cleanliness of the water. Where homes are not serviced by municipal water most lenders will require a water potability test is taken and passed.
Health Canada requires that a waterworks system must meet the following microbioloical tests:
ZONING BY-LAWS
Regional or Municipal by-laws specify or restrict land use...residential / commercial / agricultural
Should you want further explanation on any term outlined or have any questions Click Here to contact me by e-mail or call me at 1-888-877-5165 at your convenience.
Deborah Gilmore...Your Trusted Source For Anything Real Estate!
