Welcome to Home Team Ottawa’s Growing Glossary of Real Estate and Mortgage Terms
There is so much lingo we take for granted in the real estate business that ordinary folks just smile and nod as we yammer on, so here is our new and growing Glossary for our poor clients to reference when we yammer on about the Am of that FSBO’s Assumable Mort.
Amortization The period of time, often a maximum of 25 years, required to reduce the mortgage
debt to zero when all regular blended payments are made on time and provided the
terms (payment and interest rate) remain the same.
Appraisal A process for estimating the market value of a particular property.
Assumable Mortgage A Mortgage that the seller can leave with the home, requiring a buyer to only come up with the difference between the mortgage value and sales price of the home.
Blended Payment A mortgage payment that includes principal and interest. It is paid regularly
during the term of the mortgage. The payment total remains the same, although the
principal portion increases over time and the interest portion decreases.
Bridge Financing Interim financing to bridge between the closing date on the purchase
of the new property and the closing date on the sale of the current home.
Closed Mortgage A mortgage that cannot be prepaid or renegotiated before the term’s end
unless the lender agrees and the borrower is willing to pay an interest penalty. Many closed
mortgages limit prepayment options such as increasing your mortgage payment or lump
sum prepayment (usually up to 20% of your original principal amount).
Closing Costs Costs in addition to the purchase price of the home, such as legal fees, transfer
fees and disbursements, that are payable on the closing day. They range from 1.5% to 3%
of a home’s selling price.
Closing Date The date at which the sale of a property becomes final and the new owner
CMHC Canada Mortgage and Housing Corporation. A Crown corporation that administers
the National Housing Act for the federal government and encourages the improvement of
housing and living conditions for all Canadians. CMHC also develops and sells mortgage loan
Conditional Offer An Offer to Purchase that is subject to specified conditions, for example,
the arrangement of a mortgage. There is usually a stipulated time limit within which the
specified conditions must be met.
Conventional Mortgage A mortgage loan up to a maximum of 75% of the lending value of
the property. Typically, the lending value is the lesser of the purchase price and market value.
Counteroffer If your original offer to the vendor is not accepted, the vendor may counteroffer.
This means that the vendor has amended something from your original offer, such as
the price or closing date. If a counteroffer is presented, the individual has a specified amount
of time to accept or reject.
Credit Report The main report a lender uses to determine your creditworthiness. It includes
information about your ability to handle your debt obligations and your current outstanding
Deposit Money placed in trust by the purchaser when an Offer to Purchase is made. The real
estate representative or lawyer/notary holds the sum until the sale is closed and then it is
paid to the vendor.
Down Payment The portion of the home price that is not financed by the mortgage loan.
The buyer must pay the down payment from his/her own funds or other eligible sources
before securing a mortgage. It generally ranges from 5% to 25% of the purchase price but
can be more.
Equity The difference between the price for which a home could be sold and the total debts
registered against it. Equity usually increases as the mortgage is reduced through regular
payments. Market values and improvements to the property may also affect equity.
Foreclosure The legal process where the lender takes possession of your property and sells it
to cover the debts you have failed to pay off. When you default on a loan and the lender feels
that you are unable to make payments, you may lose your home to foreclosure.
Gross Debt Service Ratio (GDS) The percentage of the borrower’s gross monthly income
that will be used for monthly payments of principal, interest, taxes and heating costs (PITH)
and half of any condominium maintenance fees.
High-Ratio Mortgage A mortgage loan higher than 75% of the lending value of the property.
This type of mortgage may have to be insured — for example by CMHC or a private
company — against payment default.
Interest Adjustment Date (IAD) A date from which the accrued interest on the mortgage
advance is calculated and paid in your first regular payment. This date is usually one payment
period before the first regular mortgage payments begin.
Open Mortgage A mortgage that can be prepaid or paid off or renegotiated at any time
and in any amount without interest penalty. The interest rate on an open mortgage is usually
higher than a closed mortgage with an equivalent term.
Principal The amount that you borrow for a loan. Each monthly mortgage payment consists
of a portion of the principal that must be repaid plus the interest that the lender is charging
you on the outstanding loan balance. During the early years of your mortgage, the interest
portion is usually larger than the principal portion.
Survey or Certificate of Location A document that shows property boundaries and
measurements specifies the location of buildings on the property and states easements
Term The term of a mortgage is the length of time that the mortgage conditions, including
the interest rate you pay, are carried out. Terms are usually between six months and ten
years. At the end of the term, you either pay off the mortgage or renew it, possibly renegotiating
its terms and conditions.
Title A freehold title gives the holder full and exclusive ownership of the land and building for
an indefinite period. A leasehold title gives the holder the right to use and occupy the land
and building for a defined period.
Title Insurance Insurance against loss or damage caused by a matter affecting the title
to immovable property, in particular by a defect in the title or by the existence of a lien, encumbrance or servitude.
Total Debt Service Ratio (TDS) The percentage of gross monthly income required to cover
the monthly housing payments and other debts, such as car payments.
Vendor Take Back Mortgage This is where the vendor rather than a financial institution
finances the mortgage. The title of the property is transferred to the buyer who makes mortgage
payments directly to the seller. These types of mortgages, sometimes referred to as
take-back mortgages, can be helpful if you need a second mortgage to by a home.
Other Articles in the Owning a Home Series:
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