Glossary Of Terms

Adjustments

Property taxes and/or utility bills and condo expenses, if any, that have been prepaid by the vendor are pro-rated and paid by the purchaser to the vendor upon closing.

Amortization
Number of years it takes to repay the entire amount of the mortgage.

Appraisal
A process undertaken by an independent appraiser, hired by the bank, to determine the value of the property and decide whether the property meets lending criteria. This value may or may not match the purchase price of the home.

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. The monthly payments do not change.

Breakage costs
A sum of money paid to compensate the lender for the prepayment of a closed mortgage in part or in full prior to maturity of the term.

Certificate of location
A document prepared by a qualified surveyor specifying the exact size and location of the property and describing the type and size of the building(s), including additions, and the exact location of the building(s) on the property.

Closed mortgage
A mortgage that cannot be pre-paid, re-negotiated, or re-financed prior to the expiry of the term unless breakage costs are paid to the lender.

Closing costs
Costs that are payable when the sale is closed. Standard closing costs include adjustments for repayment of taxes; utilities and condominium common expenses, if any, made by the vendor; property land transfer taxes; property insurance; and legal fees.

Conditional offer
An offer to purchase subject to specified conditions. These conditions could include the arranging of satisfactory mortgage financing, a satisfactory inspection or the selling of a present home. A time limit in which the specified conditions must be met should be stipulated in the offer to purchase.

Conventianal mortgage
For a first-mortgage – the principal amount of which cannot exceed 75% of the lesser of the appraised value of the property or the purchase price for the property.

Convertible mortgage
A fixed-rate mortgage that offers the same security as a closed mortgage but can be converted to a longer, closed mortgage at any time without penalty.

Deed
The document prepared by a lawyer or notary, containing a detailed description of the property that transfers ownership from the vendor to the purchaser. This document is then registered against the title to the property as evidence of ownership.

Default
Non-payment by the borrower of the installments due under the mortgage when due or failure to fulfill any other term or condition of the mortgage.

Deposit
A sum of money paid by the purchaser on making an offer. These funds are usually held in trust by the real estate broker or the vendor’s lawyer or notary until the closing of the sale.

Down payment
The lump sum paid that accounts for the difference between the property sale price and the mortgage during the initial financing stages.

Easement
The right acquired for access to or over another person’s property for a specific purpose, such as for a driveway or public utilities.

Equity
The interest the owner holds in a property over and above all claims to the property. It is usually the difference between any outstanding mortgage amounts and the market value of the property.

Fire and property insurance
Before the closing date, the purchaser must have fire and property insurance arranged and in effect. Evidence of insurance is required by the mortgage lender prior to advancing mortgage funds.

Fixed-rate mortgage
The interest rate on a fixed-rate mortgage is set for a pre-determined term, usually between six months and 25 years – and can be opened or closed.

Foreclosure
A legal procedure whereby the lender obtains ownership of the property following default by the borrower by terminating all of the borrower’s rights in the property.

Inspection
The examination of the house for structural and other defects by an expert selected by the buyer.

Interest rate
The rate of return the lender receives for permitting the borrower to use the mortgage money for a specified term. The interest rate is usually expressed as an annual percentage rate.

Lender
The individual, party or financial institution who lends the money.

Mortgage default insurance
This insurance is available in all urban areas and is mandatory for borrowers with a down payment of less than 25%.

Mortgagee
A lender who advances a mortgage to a borrower, where repayment of the loan is secured by a charge on real property.

Mortgagor
A borrower who gives title to or a charge on real property to a mortgage to secure repayment of a mortgage loan.

Open mortgage
A mortgage that can be prepaid at any time to maturity, without breakage costs.

Prepayment option
The right to pay specified amounts of the principal balance prior to the maturity date of the mortgage. Breakage costs may be payable when a prepayment option is exercised under a closed mortgage.

Principal
The amount of the loan owed to the lender at any specified time, not including interest.

Term
The length of time during which the specified mortgage agreement is in effect. When the term expires, the balance of the principal is either repaid in full or the mortgage is renegotiated at then-current market rates and conditions.

Title
The right of ownership of property.

Variable-rate mortgage (floating rate)
A mortgage where payments are set for a period of one to two years or longer. Interest rates may fluctuate during this time. If rates decline, more of your payment goes towards reducing principal. If rates increase, a larger portion of the payment goes to covering interest. Variable-rate mortgages may be open or closed.

Zoning laws
Municipal laws prescribing the use of land for specific purposes and the use to which buildings on the land may be put.