Glossary

AMORTIZATION PERIOD
The number of years you have to make mortgage payments. At the end of the amortization period, your mortgage is gone and the bank no longer has any claim to it.

APPRAISED VALUE
An estimate of the value of the property offered as security for a mortgage. This appraisal is done for mortgage-lending purposes and is not a market value appraisal.

ASSETS
What you own.

BLENDED MORTGAGE
Combining the amount owing on an existing mortgage with additional mortgage money for the purpose of buying another property. The interest rate changes to one that combines the rate on the old loan with the rate in effect at the time you add additional financing.

BLENDED MORTGAGE PAYMENT
Part of the payment is applied toward the principal and part toward interest.

BRIDGE FINANCING
A special, short-term loan needed to cover (bridge) the gap in time between completing the purchase of one property and finalizing arrangements to pay for it. This is often the result of mismatched closing dates.

BUILDER
The company responsible for construction of the houses in any particular subdivision. The builder is then responsible for digging the hole, pouring the foundation, construction and finishing the dwelling. In most cases, the builder does not subdivide the land, bring in services or grade the land. The developer does this.

CANADA MORTGAGE and HOUSING CORP (CMHC)
The federal Crown corporation that administers the National Housing Act. CMHC services include providing housing information and assistance to consumers and insuring home purchase loans for lenders.

CARRYING COSTS
The actual cost of living in and maintaining a property, including mortgage payments, property tax, heating, repairs and so on.

CLOSED MORTGAGE
A mortgage agreement that does not provide for prepayment before maturity. A lender may permit prepayment under certain circumstances but may levy a prepayment charge for doing so.

CLOSING DATE
The date on which the sale of a property becomes final and the new owner takes possession.

COLLATERAL MORTGAGE
A loan backed by a promissory note and the security of a mortgage on a property. The money borrowed may be used for another purpose, such as home renovations or a vacation.

CONDOMINIUM
A form of land or home ownership which involves sharing ownership of the property with other buyers. While the purchaser has joint ownership of all lands, each buyer usually has exclusive rights to the enjoyment of a particular unit and/or lot. The joint owners must pay fees (usually monthly) to the condominium corporation to cover the maintenance of the common areas and grounds. Condominium ownership usually applies to high-rise dwellings or townhouses, but may apply to other forms of real estate. (Also see freehold).

CONDOMINIUM CORPORATION
The condominium corporation owns and operates the condominium and the lands. The corporation is comprised of all ownership within the compels. The corporation is responsible for orderly operations of the condominium, including arranging the maintenance and keeping money in reserve funds for future repairs of common areas. In a new condominium, the builder/developer usually operates the condominium for the first year, then the corporation takes over.

COMMON AREAS
Those areas in a condominium development which are enjoyed by all residents. They include fitness facilities, meeting rooms, saunas, BBQ areas, etc.

CONVENTIONAL MORTGAGE
A mortgage that does not exceed 75% of the appraised value or purchase price of the property, whichever is less.

DEFAULT
Failure to repay as agreed. Failure to pay an outstanding debt.

DEPOSIT
The sum of money given to the builder to hold your lot and begin construction of your home, or the sum of money required to be paid with an offer to purchase as a symbol of the purchaser's commitment. If the offer is accepted, the deposit is applied to the down payment. If the offer is later turned down by the buyer, the deposit may or may not be returned.

DEVELOPER
The company responsible for taking raw land, subdividing it into lots, bringing in the services (sewers, water, etc), building the roads and grading the land to efficiently drain surface water. The developer then sells these lots to the builder. Sometimes, however, the same company takes on the role of developer and builder.

DISCHARGE
To take the lien off a property after the mortgage is paid in full. (see Lien)

DOWN PAYMENT
The total amount of money you put down on the home when you take ownership.

DRAFT AND PLAN APPROVAL
The plan of the subdivision must have this approval in order for the builder to legally sell lots. Draft plan approval means the municipality has approved the developer's plan for the community subject to the developer fulfilling certain obligations set down by the municipality.

EASEMENT
A right belonging to someone than the landowner to enjoy a section of property. The easement could give an individual, company or government the right to access the land; it could give them the right to maintain equipment on or under the land; it could give them the right to dig up the land; or it could prevent the landowner from building on the easement area. The sales agent should be able to tell you about any significant easements on the property. However, before purchasing the property, your lawyer should detail all easements allowing the local hydro company access to meters or allowing Bell Canada to dig up lines are common easements.

EFFECTIVE INTEREST RATE
The real rate of interest after the effects of compounding are included. More frequent compounding adds up to a higher effective rate.

EQUITY
The difference between the price for which a property could be sold and the total debt registered against it.

FIRST MORTGAGE
The first mortgage is the debt registered against the property that has to be paid first in the event of sale or default.

FIXED RATE MORTGAGE
A mortgage for which that rate of interest is fixed for a specific period of time (the tem).

FLOATING RATE MORTGAGE (see Variable Rate Mortgage)

FREEHOLD
A form of land ownership which gives the purchaser exclusive tile to the land she or he has purchased. Exclusive ownership means exclusive responsibility for the maintenance and expenses of the property.

GROSS DEBT SERVICE (GDS) RATIO
The percentage of gross annual income required to cover payments associated with housing. This includes mortgage principal, interest, taxes, other home-related debt charges, heating and 50% of condominium fees, if applicable. Most lenders prefer that the GDS Ratio be no more than 32% of gross annual income.

HIGH RATIO MORTGAGE
A mortgage that exceeds 75% of the appraised value or purchase price of the property, whichever is less. This mortgage must be insured to a certain maximum by CMHC or an approved private insurer, such as MICC. Often called an NHA loan because it is granted under the provisions of National Housing Act.

INTEREST
The lending institution will quote you a percentage rate. Whatever rate you are given, you must pay this portion of your principal to the institution each year. These payments are what you give the institution in exchange for it lending you money. The amount is calculated into monthly payments and added to the amount of principal you must pay off each month. The total is your monthly payment.

INTEREST ADJUSTMENT DATE (IAD)
The date on which the mortgage really begins, usually the first of the month. The borrower is required to pay interest on the loan between the date of receiving the funds and the IAD before regular mortgage payments start.

LEASEHOLD MORTGAGE
A mortgage for the purchase of a home or improvements to a home where the building is on land that is leased or rented.

LIABILITIES
What you owe.

LIEN
The lender's legal claim to the borrower's property.

LOAN-TO-VALUE RATIO
The ratio of the loan to the appraised, whichever is less, expressed as a percentage.

MATURITY DATE
The last day of the term of the mortgage agreement. The mortgage must be paid in full or the agreement renewed by the maturity date.

MORTGAGE
The amount of money you borrow from a financial institution in order to buy your home. The property being purchased becomes the security for the loan.

MORTGAGEE
The lender.

MORTGAGE INSURANCE COMPANY of CANADA (MICC)
A private insurance company that provides mortgage insurance services similar to those provided by CMHC.

MORGATOR
The borrower.

NOMINAL RATE
The quoted interest rate for a mortgage.

NATIONAL HOUSING ACT LOAN
A mortgage backed (insured) to a certain maximum by CMHC or an approved private insurer, such as MICC.

OFFER TO PURCHASE
A formal, legal agreement that offers a certain price for a specified property. The offer may be firm (no conditions attached) or conditional (certain conditions must be fulfilled).

OPEN MORTGAGE
A mortgage agreement that allows the borrower to repay the debt more quickly than specified and usually without prepayment charges.

ONTARIO NEW HOME WARRANTY PROGRAM (ONHWP)
A private non-profit organization established in 1976 by the provincial government to administer the Ontario New Home Warranties Plan Act. The act is designated to protect consumers by ensuring they get a quality home. All builders in Ontario must enroll each and every house in the program. If you have a dispute with your builder, you may contact ONHWP to mediate.

PAYMENT
The amount of money you must give the financial institution in exchange for the institution lending you the you need to buy the home. Some of your payment goes toward paying off interest on the borrowed money and the rest goes to paying off the principal.

PRINCIPAL
The principal is equal to the total amount of your mortgage. That portion of your monthly payment which goes toward paying off your mortgage is your principal payment.

PRE-APPROVED MORTGAGE
Preliminary approval by the lender of the borrower's application for a mortgage to a certain maximum amount and rate.

PORTABLE MORTGAGE
An option that allows the transfer of the loan balance, interest rate and remaining term of the old mortgage to a new property.

PITH
Principal, interest, tax and heating costs.

PRE-DELIVERY INSPECTION (PDI)
This is an inspection of a new house done by the purchaser in the company of the builder's representative. It should be done three to five days before you take occupancy. Everything that is not to your satisfaction should be noted on the builder's PDI Inspection Report Form and on the ONHWP certificate.

PRE-PAYMENT CHARGE
A fee charged by the lender when the borrower prepays all or part of a mortgage more quickly than stated in the mortgage agreement. The fee is charged to compensate the lender for loss of revenue.

PREPAYMENT OPTIONS
Clause in a mortgage agreement that specifies when and how prepayments may be made.

PROMISSORY NOTE
An unconditional promise to pay a certain amount of money on demand or by a fixed date.

REFINANCE
To pay in full and discharge a mortgage and any other registered encumbrances and arrange for a new mortgage with the same or a different lender.

RENEGOTIATE
To change the terms and conditions of a mortgage agreement prior to maturity. Renegotiation occurs with the lender who currently holds the mortgage.

RENEW
To extend a mortgage agreement with the same lender for another term. The length of the term and the conditions (such as the rate of interest) may be changed.

RESERVE FUND
A fund set up by a condominium corporation for major repairs and replacement of such items as the roof, elevators, plumbing, heating systems, etc. A reserve fund is required by law.

REGISTERED SUBDIVISION
A builder cannot get a building permit for construction of house unless the plan of subdivision is registered. Once a plan is registered, you know that the design and standards presented by the developer have been approved by the municipality.

SECOND MORTGAGE
A mortgage granted when there is already a mortgage registered against the property. The borrower defaults and the property is sold, the second mortgage is paid after the first.

SECURITY
Property offered as backing for a loan. In the case of mortgages, the property being purchased with the loan usually forms the security for the loan.

SWITCH
To refinance the mortgage with another lender for a fee. This is an option borrowers have at the end of a mortgage term. If the borrower meets both lender's requirements, this may also be done in mid-term. Also referred to as a transfer.

SPECIFICATION SHEET
This is a sheet given out by new home sales agents stating the standards the home ill be built to. It usually list such items as the type of flooring to be used, the electrical systems, the type of heating systems and details of the wood sizes to be used for framing the house.

SUBDIVISION
This refers to the land being developed. It is called a subdivision because one large piece of land under one ownership is subdivided into several lots to be sold to many purchasers.

SUBTRADES
The trades often hire out to other companies to assist them in completing their work.

TERM
The length of time a mortgage agreement covers. Payments made may not fully repay the outstanding principal by the end of the term because the amortization period is generally longer.

TOTAL DEBT SERVICE (TDS) RATIO
The percentage of gross (before tax) annual income needed to cover payments for housing and all other debts and financing obligations. The total should not be more than 40% of gross annual income.

TRADES
The builder often hires other companies to construct the home, install heating and plumbing and finish the home. These hired companies are the trades.

VARIABLE RATE MORTGAGE
A mortgage for which the rate of interest changes as money market conditions change. The regular payments stay the same for a specific period. However, the amount applied toward the principal changes according to the change (if any) in the rate of interest. Also referred to as a floating rate mortgage.

VENDOR TAKEBACK
Where the vendor (seller) of a property provides some or all of the mortgage financing in order to sell the property.