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Following is a list of mortgage terms defined. I will be happy to add any other definitions pointed out to me.
Please e-mail any specific questions. info@patpelletier.com
AGREEMENT FOR SALE
A formal, written document in which the purchaser agrees to buy certain Real Estate and the seller agrees to
sell under stated conditions and terms. BEWARE - Title will generally not pass on to you until you have paid off
the whole agreement amount. Consult a Lawyer if you are offered such a transaction. There are some situations,
where this can be a good deal for you.
AMENITIES
In a Condominium Project - All aspects of a property that enhances its value. Reserved parking, nearness of
good public transportation tennis courts, recreation facilities or swimming pool are a few examples.
AMORTIZATION
The period of time it will take you to pay off your mortgage. This is usually quoted in years, and usually
25 years. Not to be confused with "Term".
APPRAISAL
An independant evaluation of the property. The Lender will usually require that you hire an independent appraiser
to estimate the current market value of the house. The appraiser
has no vested interest in the purchase/sale and as such can estimate the "fair
market value".
ASSESSED VALUE
Value of Real Estate property as determined by a Municipality for taxation purposes
ASSETS
A list of things of liquid value owned by the applicant/borrower. These can include cash, term deposits, GIC's,
RRSP's, real estate properties, automobiles, stocks, bonds, mutual funds, jewelry and other household goods.
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BLANKET MORTGAGE
See inter-alia mortgage
BUY DOWN
The cost of making the effective interest rate lower than the current market rate. This is usually paid by
the vendor but may also be paid by the borrower. Example: Say current interest rates are 10% for a one year term
and the vendor wants to make his property more attractive by offering financing at 7% on a mortgage of $100,000.
for a one year term. The cost to "buy down" the interest would be approximately $2,700.00. This would
be paid directly to the lender.
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CMHC
Canada Mortgage and Housing Corporation. This is a Crown Corporation set up under the National Housing Act
(NHA) to insure lenders of high ratio mortgages against losses in case of default by the borrower.
CMHC MORTGAGE
Mortgage insured by CMHC. See High Ratio Mortgage
CLOSED MORTGAGE
A mortgage that CANNOT be prepaid or repaid in advance of the maturity date without penalty.
COMMON TENANCY
The ownership of property by two of more persons, where on the death of one, his share is credited to his own
estate.
COMPLETION
The date where the Real Estate transaction is legally concluded in the Registry Office. The Purchaser pays
his money on this date and the Vendor receives it.
CONVENTIONAL MORTGAGE
A mortgage where the loan does not exceed 75% of the value of a house/property. For example a $150,000. mortgage
on a purchase price of $200,000. would be classified as a Conventional Mortgage.
CONVERTIBLE MORTGAGE
A mortgage where a Borrower has a "window" of opportunity to renegotiate the term of the mortgage.
This is a very worthwhile feature and should be investigated for persons wishing to wait a while before committing
to a long term mortgage. The rates for convertible mortgages are typically 1/2 of 1% less than an "open"
mortgage
CO-COVENANTOR
An individual who contractually undertakes to discharge the responsibilities of the borrower in the event of
the borrower's default.
COMMON AREAS
Lands or improvements on land that are designated for common use and enjoyment by all occupants, tenants or
owners. A pool, tennis court, hot tub or common halls would all be part of the Common Area.
COMPOUNDED
Indicates the frequency with which interest is computed and added to the principal to arrive at a new actual
balance. The essential point to remember if you are a borrower is the the less frequent the compounding, the better
deal for you. If you are a Lender (or saver at the bank) the more often the frequency of compounding, the more
you will get in return. In Canada, Lenders, generally compound mortgages semi-annually.
CONDO OR CONDOMINIUM
A form of ownership of Real Property. The purchaser receives title to a particular unit and a proportional
interest in certain common areas (halls, entry, etc). A condominium generally defines each unit as a separately
owned space to the interior surfaces of the perimiter walls, floors, and ceilings. Title to the common areas is
in terms of percentage and refers to the entire project less the separately owned units. Generally speaking, if
you owned a condo in a project of 10 identical units,
you would have title to your unit plus 1/10th of the common areas.
CONVEYANCE
Transfer of Title of real estate property from one individual to another.
COVENANT
Solemn or written agreement.
COVENANTOR
In a mortgage this means the Borrower
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EASEMENT
A right to the limited use or enjoyment of land. The Easement is usually held by another and is a registered
interest in land to enable sewer or other municipal services, power lines, roads or to allow for access to the
property.
ENCROACHMENT
An improvement (building, fence, etc) that illegally violates another's property.
EQUITY
When speaking of real estate equity, this is defined as the difference between the value of the property and
the amount of mortgages secured against the property.
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FAIR MARKET VALUE
The price or value at which property is transferred between a willing and informed buyer and a willing and
informed seller, each of whom has a reasonable knowledge of all pertinent facts and neither being under any compulsion
to buy or sell.
FIRST TIME HOME BUYERS
Defined by CMHC as one of the buyers who has not owned Real Estate property in the last 5 years. Different
definition as it applies to BC Purchase Property Tax Exemption, where one must have NEVER owned a house anywhere.
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GDS or GDSR
See Gross Debt Service Ratio
GROSS DEBT SERVICE RATIO
GDSR or GDS The measure by which Lenders define the ability of the borrowers to pay for their mortgage debt. This
is the total mortgage debt service expressed as a percentage of the borrowers income. This ratio is calculated
by dividing the total of Principal, Interest, Taxes and a Heating component into the Borrowers total income. FOR
EXAMPLE: Suppose a Borrower has a total monthly income of $5,000. and suppose the Principal and Interest component
of his mortgage total $1,200. and that the monthly property tax component is $100. Also assume an arbitrary heating
component of $50.00 a month for a total of $1,350. Therefore $5,000. divided by $1,350.00 would give you a GDS
R of 27%. Lenders vary as the maximum they will allow a borrower's GDS to be. This can range from 27% to 33%. Most
of our Lenders will allow 33% and up to 35% for First Time Home Buyers.
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HIGH RATIO MORTGAGE
A mortgage for more than 75% of the value. of the purchase price or value. These have to be "insured"
by CMHC and a premium is added to the loan. For example if you had a loan of $100,000. against a purchase price
of $115,000.00, a "premium" of $2,500.00 would be added to the loan. Therefore the Borrowers would start
with an indebtedness of $102,500.00. It should be pointed out that most all Lenders insure their High Ratio mortgages
this way.
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INTER ALIA MORTGAGE
Also referred to as a Blanket Mortgage. The words "Inter Alia" are Latin for "Amongst other
things". Therefore an Inter Alia Mortgage would cover more than one property. Typically it is a mortgage covering 2 or more properties.
INTEREST
Consideration in the form of money, paid for the use of money. Usually expressed as a percentage, compounded
semi-annually.
Can also mean a right, share or title in property.
INTEREST RATE DIFFERENTIAL
IRD. Usually refers to compensation due to the Lender on payout. This is the value of the difference between the
contractual rate of the mortgage and the rate the Lender can now get for his money. Example: A mortgage has a term
of 3 years to go at 13% and now the Lender can only get a market rate of 8%. You want to pay out your mortgage.
The Lender may ask you to pay the difference in interest. This can add up to thousands of dollars. Payout penalties
are usually quoted as the "greater" of IRD or 3 months interest penalty. Borrowers not asking about the
IRD may be in for a shock if rates decline considerably.
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JOINT TENANCY
Ownership of Real Property by two or more people. when one dies, his share automatically passes to the survivors.
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LIABILITIES
The amount of debts a person owes.
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MICC
A private mortgage insurer, Mortgage Insurance Company of Canada. Not frequently used by Lenders. Generally
has the the guidelines as CMHC.
MORTGAGE BROKER
A firm or more frequently and Individual who brings the Borrower together. Does the mortgage shopping for the
Borrower. In B.C. the Broker must be licensed.
MORTGAGE INSURANCE COMPANY OF CANADA
See MICC
MORTGAGEE
The Lender in a Mortgage Transaction
MORTGAGOR
The Borrower in a Mortgage Transaction
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NET WORTH
The residual after deducting Assets from Liabilities
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OPEN MORTGAGE
A mortgage that can be prepaid at anytime during the contract, and before maturity, WITHOUT penalty.
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PREPAYMENT CLAUSE
In a mortgage, an agreement giving the Borrower the privilege of paying additional sums off the principal balance
over and above the agreed contractual payments.
PRINCIPAL
The amount of debt, exclusive of accrued interest, remaining on a loan.
PURCHASE PROPERTY TAX
In British Columbia, we have a Purchase Property Tax which applies to most properties. There are exemptions
for First Time Buyers. Generally, the tax is 1% of the first $200,000.00 purchase and 1% of the balance. There
are property purchase price limits. Generally, again, the
tax applies on any purchase over $250,000. (depending on where you are buying).
Because there are so many variables, I have made this a clickable option for you.
If your case is not covered in there, plase call the Ministry of Finance and Corporate Relations in Victoria, BC
at (604) 387-0604.
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REAL PROPERTY - REAL ESTATE PROPERTY
Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals and the
interest, benefits and inherent rights thereof. Sometimes called Real Estate.
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STRATA FEES
Monthly levies by the corporation owning the Condominium for the maintenance of common areas, cleaning, reserves
for repairs to major common areas like the roof, etc.
SURVEY
A formal report by a qualified Land Surveyor on the mathematical boundaries of land, showing land of buildings,
physical features and quantity of land.
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TDS or TDSR
See Total Debt Service Ratio
TERM
The amount of time that the contract is written for and that the interest rate is guaranteed for. Not to be
confused with "Amortization". Typically in Canada terms range from 1 to 5 years.
TOTAL DEBT SERVICE RATIO
TDSR or TDS. Add all other debt payments to the GDSR and measure as a percentage of the total income of the Borrower.
Suppose in the Example of the GDSR above the Borrower had a monthly car payment of $300.00 on top of his PITH (principal,
interest, taxes, heat) for a total monthly obligation of $1,650.00 This represents 33% of the Borrowers total income. Lender will usually allow up to 40 or 42% maximum TDS
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VENDOR
The Seller
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© 2001 Mortgage Headquarters
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