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Mortgage Terms Glossary

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A


Agreement of Purchase and Sales
The legal contract a purchaser and a seller go into. We recommend that you have your offer prepared by a professional realtor that has the knowledge and experience to satisfactorily protect you with the most suitable clauses and conditions.

Amortization Period
The number of years it takes to repay the entire amount of the financing based on a set of fixed payments.

Appraisal
The process of determining the market value of a property.

Assets
What you own or can call upon. Often used in determining net worth or in securing financing.

Assumtion Agreement
A legal document signed by a buyer that requires the buyer assume responsibility for the obligations of an existing mortgage. If someone assumes your mortgage, make sure that you get a release from the mortgage company to ensure that you are no longer liable for the debt.

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B


Blended Payments
Equal payments consisting of both an interest and a principal component. Typically, while the payment amount does not change, the principal portion increases, while the interest portion decreases.

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C


Canada Mortgage and Housing Corporation (CMHC)
CMHC is a federal Crown corporation that administers the National Housing Act (NHA). Among other services, they also insure mortgages for lenders that are greater than 80% of the purchase price or value of the home. The cost of that insurance is paid for by the borrower and is generally added to the mortgage amount. These mortgages are often referred to as "Hi-Ratio" mortgages.

 

Chattel Mortgage : A term used to describe a loan arrangement in which an item of movable personal property is used as security for the loan. A chattel mortgage is a loan that is secured by chattel rather than by real property. In a traditional mortgage, the loan is secured by the property itself. With a chattel mortgage, the lender holds a lien against the movable property (chattel) until the loan has been satisfied, at which point the borrower resumes full control of the chattel.

Chattel Mortgage further explained - A chattel mortgage is an option for mobile homes that are located in parks and leased land, where the home is not financed with the land. The mobile home, since it can be moved from one location to another, serves as security for the loan. Businesses may use chattel mortgages to purchase new properties while using chattel as security. This allows the new property to be used to its fullest and best use without the burden of a lien. A chattel mortgage may prove to be advantageous to the lender since the lender would be able to seize the chattel in the event of default and sell it to recover losses from the remaining mortgage.


Closed Mortgage
A mortgage that cannot be prepaid or renegotiated for a set period of time without penalties.

Closing Date
The date on which the new owner takes possession of the property and the sale becomes final.

Collateral
An asset, such as term deposit, Canada Savings Bond, or automobile, that you offer as security for a loan.

Conventional Mortgage
A mortgage up to 80% of the purchase price or the value of the property. A mortgage exceeding 80% is referred to as a "Hi-Ratio" mortgage and the lender will require insurance for that mortgage.

Credit Scoring
A system that assesses a borrower on a number of items, assigning points that are used to determine the borrower's credit worthiness.

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D

Defective Title

A piece of property or asset that has a publicly-recorded encumbrance, such as a lien, mortgage or judgment. Because other parties can lay claim to the property or asset, the title cannot be legally transferred to another party. For example, a homeowner cannot sell a home if there is an outstanding tax lien on the property. That lien would first have to be cleared before any action can be taken on the property.

Defective Title Explained: - Because the property or asset cannot be legally transferred to another party, the title is considered to be unmarketable. If the title holder wants to be able to do anything, the encumbrances must first be taken care of.


Demand Loan
A loan where the balance must be repaid upon request.

Deposit
A sum of money deposited in trust by the purchaser on making an offer to purchase. When the offer is accepted by the vendor (seller), the deposit is held in trust by the listing real estate broker, lawyer, or notary until the closing of the sale, at which point it is given to the vendor. If a house does not close because of the purchaser's failure to comply with the terms set out in the offer, the purchaser forgoes the deposit, and it is given to the vendor as compensation for the breaking of the contract (the offer).

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E


Equity
The difference between the market value of the property and any outstanding mortgages registered against the property. This difference belongs to the owner of that property.

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F


First Mortgage
A debt registered against a property that has first call on that property.

Fixed-Rate Mortgage
A mortgage for which the interest is set for the term of the mortgage.

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G


Gross Debt Service Ratio (GDS)
It is one of the mathematical calculations used by lenders to determine a borrower's capacity to repay a mortgage. It takes into account the mortgage payments, property taxes, approximate heating costs, and 50% of any maintenance fees, and this sum is then divided by the gross income of the applicants. Ratios up to 32 % are acceptable.

Guarantor
A person with an established credit rating and sufficient earnings who guarantees to repay the loan for the borrower if the borrower does not.

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H


High-Ratio Mortgage
A mortgage that exceeds 80% of the purchase price or appraised value of the property. This type of mortgage must be insured. To avoid the cost of the insurance, a 1'st mortgage up to 80% is arranged and a 2'nd mortgage for the balance (up to 90% of the purchase price).

Home Equity Line of Credit
A personal line of credit secured against the borrower's property. Generally, up to 75% of the purchase price or appraised value of the property is allowed to be borrowed with this product.

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I


Interest Adjustment Date (IAD)
The date on which the mortgage term will begin. This date is usually the first day of the month following the closing. The interest cost for those days from the closing date to the first of the month are usually paid at closing. That is why it is always better to close your deal towards the end of the month.

Interest-Only Mortgage
A mortgage on which only the monthly interest cost is paid each month. The full principal remains outstanding. The payment is lower than an amortized mortgage since once is not paying any principal

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J


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K


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L

Liquid Asset

An asset that can be converted into cash quickly (or Cash) and with minimal impact to the price received. Liquid assets are generally regarded in the same light as cash because their prices are relatively stable when they are sold on the open market.

For an asset to be liquid it needs an established market with enough participants to absorb the selling without materially impacting the price of the asset. There also needs to be a relative ease in the transfer of ownership and the movement of the asset. Liquid assets include most stocks, money market instruments and government bonds. The foreign exchange market is deemed to be the most liquid market in the world because trillions of dollars exchange hands each day, making it impossible for any one individual to influence the exchange rate.

Hence, Real Estate is not considered a "Liquid Asset"


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M


Mortgage
A mortgage is a loan that uses a piece of real estate as a security. Once that loan is paid-off, the lender provides a discharge for that mortgage.

Mortgagee
The financial institution or person (lender) who is lending the money using a mortgage.

Mortgagor
The person who borrows the money using a mortgage.

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N


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O


Open Mortgage
A mortgage that can be repaid at any time during the term without any penalty. For this convenience, the interest rate is between 0.75-1.00% higher than a closed mortgage. A good option if you are planning to sell your property or pay-off the mortgage entirely.

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P


P.I.T.
Principal, interest, and property tax due on a mortgage. If your down payment is greater than 25% of the purchase price or appraised value, the lender will allow you to make your own property tax payments.

Portable Mortgage
An existing mortgage that can be transferred to a new property. One would want to port their mortgage in order to avoid any penalties, or if the interest rate is much lower than the current rates.

Prepayment Penalty
A fee charged a borrower by the lender when the borrower prepays all or part of a mortgage over and above the amount agreed upon. Although there is no law as to how a lender can charge you the penalty, a usual charge is the greater of the Interest Rate Differential (IRD) or 3 months interest.

Prime
The lowest rate a financial institution charges its best customers.

Principal
The original amount of a loan, before interest.

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Q


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R


Rate Commitment
The number of days the lender will guarantee the mortgage rate on a mortgage approval. This can vary from lender to lender anywhere from 30 to 120 days.

Renewal
When the mortgage term has concluded, your mortgage is up for renewal. It is open at this time for prepayment in part or in full, then renew with same lender or transfer to another lender at no cost (we can arrange).

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S


Second Mortgage
A debt registered against a property that is secured by a second charge on the property.

Switch
To transfer an existing mortgage from one financial institution to another. We can have this arranged for you at no cost to you.

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T


Term
The period of time the financing agreement covers. The terms available are: 6 month, 1,2,3,4,5,6,7,10 year terms, and the interest rates will be fixed for whatever term once chooses.

Title                                                                                                                                                            Is a term that refers to the ownership of a property. If something is registered "on title" it means that it is officially registered against the ownership of the property through the Land Titles Office, where property ownership is recorded.

Total Debt Service (TDS) Ratio
It is the other mathematical calculations used by lenders to determine a borrower's capacity to repay a mortgage. It takes into account the mortgage payments, property taxes, approximate heating costs, and 50% of any maintenance fees, and any other monthly obligations (i.e. personal loans, car payments, lines of credit, credit card debts, other mortgages, etc.), and this sum is then divided by the gross income of the applicants. Ratios up to 40 % are acceptable.

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U


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V


Variable Rate Mortgage
A mortgage for which the interest rate fluctuates based on changes in prime.

Vendor Take Back (VTB) Mortgage
A mortgage provided by the vendor (seller) to the buyer.

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W


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X


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Y


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Z


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Serving the Burlington, Hamilton, Ancaster, Stoney Creek, Beamsville, Oakville, Milton, Brampton, Mississauga, Halton Region, Toronto (GTA)
Simon Vendryes Mortgage Agent Lic#M11001707. Real Mortgage Associates. Direct Line: 1 888 577 9931 . Fax: 1 877 531 5290
578 Upper James Street. Hamilton, Ontario. Canada. L9C 2Y6    RMAI Lic.#. 10464 Tel: 1.877.677.7778