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A glossary for real estate
- Amortization
- The period required to reduce a debt to zero when payments are made
regularly.
- Appraisal
- For mortgage lending purposed it is a process whereby the lending value
of the property is determined. The lending value may or may not match the
purchase price of the home. An appraisal done for mortgage lending
purposes is carried out for the benefit of the lender or the mortgage
insurer (CMHC). For consumers an appraisal is done by a trained
professional to determine what a house is worth.
- An approved lender
- A lending institution authorized by the Government of Canada through
CMHC to make loans under the terms of the National Housing Act.
- Assumption Agreement
- A legal document signed by a home buyer that requires the buyer to
assume responsibility for the obligations of a mortgage made by the
builder or the original owner.
- Bridge financing
- Interim financing to bridge the time gap between the closing date on the
purchase of the new home and the closing date on the sale of the current
home.
- Building permits
- A certificate that must be obtained from the municipality by the
property owner or contractor before a building can be erected or repaired.
It must be posted in a conspicuous place until the job is completed and
passed as satisfactory by a municipal building inspector.
- Closing dates
- Usually, the date on which the sale of a property becomes final and the
new owner takes possession.
- Collateral mortgage
- A mortgage which secures a loan by way of a promissory note. The money,
which is borrowed, can be used to buy a property or for another purpose
such as a home renovation or vacation and so on.
- Conventional mortgage loan
- A mortgage loan up to a maximum of 75% of the lending value of the
property for which a lender does not require mortgage loan insurance.
- Covenant
- A clause in a legal document which, for a mortgage, gives the parties to
the mortgage a right on an obligation. For example, a covenant can impose
the obligation on a borrower to make mortgage payments in certain amounts
on certain dates. A mortgage document actually consists of covenants
agreed to by the borrower and the lender.
- Default
- Failure to abide by the terms of a mortgage loan agreement.
- Easement
- A right of access to or over, and perhaps use of, another person’s
land for a specific purpose such as a driveway or public utilities.
- Encumbrance
- A registered claim for debt against a property, such as a mortgage.
- Equity (owner)
- The difference between the price for which a home could be sold and the
total debts registered against the home. Owner equity usually increases as
the outstanding principal of the mortgage is reduced through regular
payments. Market values and improvements to the property also affect
equity.
- Foreclosure
- A legal procedure whereby the lender obtains ownership of the property
following default by the borrower.
- Gross debt service ratio (GDS)
- The percentage of the borrower’s gross income that will be used for
monthly payments of principal, interest, taxes, heating costs, and half
condominium fees.
- Holdback
- An amount of money withheld by the lender during the progress of
construction of a house to ensure that construction is satisfactory at
every stage.
- Insured mortgage loan
- A first mortgage loans, often for more than 75% of the value of the
property, where the lender has the mortgage insured by either CMHC or a
private mortgage insurance company. Mortgage loans of more than 75% of the
value are also called high ratio loans.
- Mechanics’ lien
- A claim against a property for money owing. A lien may be filed by a
supplier or a subcontractor who has provided labour or materials but has
not been paid. A lien must be property filed by a claimant. It has a
limited life, prescribed by statute that varies from province to province.
If the lien-holder takes action within the prescribed time, the homeowner
may be obliged to pay the amount claimed by the lien-holder.
Alternatively, the lien-holder may force a sale of the property to pay off
the debt.
- Mortgage
- A mortgage is security for a loan on the property that you own. It
provides for your personal guarantee to repay the loan and a pledge of the
property as security for the loan.
- Mortgagee
- The lender who provides the mortgage loan
- Mortgagor
- The borrower who pledges his property as security for the loan.
- Offer to purchase
- A written contract setting out the terms, under which the buyer agrees
to buy. Upon acceptance be the seller, it forms a legally-binding contract
subject to the terms and conditions stated in the document.
- Option agreement
- A document stipulating that, in exchange for deposit, a specified
individual is to be given the first chance of buying a property at or
within a specified period. If the option holder does not buy at or within
the specified period, he or she loses the deposit and the agreement is
canceled.
- P.I.T.
- The principal and interest payment, and includes one-twelfth of the
estimated annual municipal taxes.
- P.I.T.H.
- Principal, Interest, Taxes, and Heating costs used to calculate the
gross debt service ratio (GDS).
- Principal
- The amount of money actually borrowed
- Roll-over mortgage
- A mortgage loan where the interest rate is established for a specific
term, usually between one and five years. At the end of this term, the
mortgage is said to "roll-over" and the borrower and lender may
agree to extend the loan at a mutually acceptable interest rate. If
satisfactory terms cannot be agreed upon, the lender is entitled to be
repaid in full. If this happens, the borrower may have to seek alternative
financing. The mortgages are not seen very often in today’s marketplace.
- Soft costs
- Include costs such as an appraisal, home inspection, property tax, legal
fees, etc.
- Term
- The length of time during which you pay a specific interest rate on your
mortgage loan. You may not have paid off your entire mortgage principal at
the end of a term because your amortization period will likely be longer
than the term.
- Title (freehold or leasehold)
- A freehold title is evidence of ownership of land and buildings for an
indefinite period. A leasehold title is evidence of a right to use and
occupy land and building for a defined period. In a leasehold arrangement
actual ownership of the land (and perhaps buildings) remains with the
landlord.
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