Our glossary of terms contains many common phrases, words, and terms you may come across when shopping for a mortgage. Click on a letter of the alphabet to jump to terms beginning with that letter.

“A”

ACCELERATION CLAUSE

A clause in the mortgage document which accelerates the maturity date and states that upon default, the principal sum of the mortgage and accrued interest falls due.

ACCRUED INTEREST

Interest which has accumulated unpaid since last payment date.

ADD-ON INTEREST

An interest amount added to the principal of a debt and made payable as part of the debt, usually in equal periodic installments (also called Pre-calculated interest).

ADJUSTMENT DATE

Date agreed to by both parties to a real property transaction for the adjustment of property taxes, rent, interest, and other items.

AFFIDAVIT

A statement of declaration in writing and sworn or affirmed before an authorized individual, such as a notary public.

AGENCY

A relationship which arises out of a contract, where an agent is authorized by a principal to engage in certain acts, usually in dealing with one or more third party(s).

AGREEMENT OF PURCHASE AND SALE

A written contract to buy property in which the purchaser and vendor agree to sell upon terms and conditions as set forth in the agreement.

AGREEMENT FOR SALE

A formal, written document in which the purchaser agrees to buy certain Real Estate and the seller agrees to sell under stated conditions and terms. BEWARE - Title will generally not pass on to you until you have paid off the whole agreement amount. Consult a Lawyer if you are offered such a transaction. There are some situations, where this can be a good deal for you.

AMENITIES

In a Condominium Project - All aspects of a property that enhances its value. Reserved parking, nearness of good public transportation tennis courts, recreational facilities or swimming pool are a few examples.

AMORTIZATION

The period of time it will take you to pay off your mortgage. This is usually quoted in years, and usually 25 years. Not to be confused with "Term".

AMORTIZATION OF A MORTGAGE

The arrangement for paying off a mortgage by installments, over a period of time.

AMORTIZATION PERIOD

The time period required to completely retire a debt through scheduled payments of principal.

ANNIVERSARY DATE

The occasion of one year from an event pertaining to a mortgage. (e.g.: Registration date or interest adjustment date).

APPRAISAL

An independent evaluation of the property. The Lender will usually require that you hire an independent appraiser to estimate the current market value of the house. The appraiser has no vested interest in the purchase/sale and as such can estimate the "fair market value".

APPRAISED VALUE

An estimate of property value written by a qualified individual (AACI). Appraisals performed for mortgage lending purposes, may not reflect the market value of the property, or the purchase price.

APR (Annual Percentage Rate)

The yearly interest percentage of a mortgage as expressed by the actual rate of interest paid given the term, rate, amount and cost of arrangement.

APPURTENANCE

Something which is outside the property itself, but belongs to the land and is joined thereto; e.g.: a road over another's land providing an access (right-of-way) is an appurtenance.

ARM (Adjustable Rate Mortgage)

A mortgage for which the interest rate is adjusted periodically according to movements in a pre-selected index (i.e. Prime Rate).

ARMS LENGTH TRANSACTION

Transaction in which the parties involved are not inclined towards making voluntary concession to each other.

ARREARS

To be in arrears is to be behind in the payments called for under a mortgage agreement.

ASSESSED VALUE

Value of Real Estate property as determined by a Municipality for taxation purposes.

ASSETS

A list of things of liquid value owned by the applicant/borrower. These can include cash, term deposits, GIC's, RRSP's, real estate properties, automobiles, stocks, bonds, mutual funds, jewelry and other household goods.

ASSIGNEE

One who takes the rights or title of another by assignment.

ASSIGNMENT OF MORTGAGE

The assigning of a mortgagee's interest in the mortgage to a new mortgagee.

ASSIGNMENT OF RENT

The redirection of rental income to a Mortgagee, usually in the event of default.

ASSIGNOR

One who transfers or assigns the rights or title to another.

ASSUMPTION AGREEMENT

A document which binds someone other than the mortgagor, to perform mortgage obligations.

ASSUMABLE MORTGAGE or ASSUMPTION OF MORTGAGE

The action of a purchaser taking responsibility for a mortgage debt by way of a legal agreement. The original covenantor(s) responsibility pursuant to the mortgage obligation remains intact in such arrangement, unless released by the mortgagee. See Release of Contract.

AUTHORITY

The legal right given by a principal to an agent to act on the principal's behalf in performing specific acts or negotiations.

AUTHORIZED SIGNATURE

A signature by a person authorized by a company to obligate the company on a long-term lease. An authorized signer will usually be substantiated by the Corporate Resolution which specifies who can sign and what his/her responsibilities may be.

“B”

BLANKET MORTGAGE

See inter-alia mortgage.

BUY DOWN

The cost of making the effective interest rate lower than the current market rate. This is usually paid by the vendor but may also be paid by the Borrower. Example: Say current interest rates are 10% for a one year term and the vendor wants to make his property more attractive by offering financing at 7% on a mortgage of $100,000.00 for a one year term. The cost to "buy down" the interest would be approximately $2,700.00. This would be paid directly to the Lender.

BALANCE SHEET

A financial statement listing Assets, Liabilities, and Owner's Equity at a specific point in time. Also known as a Statement of Financial Position or Statement of Assets and Liabilities.

BALANCE DUE ON COMPLETION

The amount of money a purchaser will be required to pay to the vendor to complete the purchase, after all adjustments have been made.

BALLOON PAYMENT

This is a final mortgage payment at the end of the term which pays off the outstanding loan in full. The amount of money (principal) required to discharge a mortgage at maturity.

BLENDED PAYMENT

Equal payments consisting of both principal and interest, paid regularly during the term of the mortgage.

BREACH OF CONTRACT

Failure to fulfill an obligation under a contract. Breach confers a right of action on the offended party.

BRIDGE FINANCING

A loan required by a builder to obtain funds during the period between a permanent take out commitment and a construction loan. The construction Lender will usually require permanent mortgage commitment to the full amount of the construction loan plus a hold back provision that only the floor amount will be funded at the completion of construction.

BORROWING

BROKERAGE FEE

Fee charged by a mortgage broker for arranging a loan.

BUILDING CODES

BUILDERS LIEN

A claim registered against the title to land by a contractor, supplier of materials or workman with respect to work done or materials supplied to improve that land.

BUYDOWN

A payment to the Lender from the seller, buyer or third party causing the Lender to reduce the interest rate during the term of the mortgage.

“C”

CAP

Refers to a maximum interest rate increase for a mortgage.

CAPITALIZATION RATE

The rate of return anticipated by an investor in property.

CAPITALIZED VALUE

The value of a property based on the net income.

CAVEAT EMPTOR

Let the buyer beware. A buyer must examine fully before the purchase is made.

CERTIFICATE OF CHARGE

A mortgage document in the Land Titles System.

CERTIFICATE OF TITLE

The sequence of conveyances and encumbrances affecting a title to land from the time that the original patent was granted or as far back as records are available.

CHARGE

The name given to a mortgage document when title is registered under the Land Titles Act.

CHARGE ON TITLE

Any encumbrance or claim that affects title to property.

CHATTEL MORTGAGE

An encumbrance against moveable possessions, or personal property that may be removed without damage to the property, (e.g. appliances).

CHATTELS

Moveable possessions and personal property that may be removed without damage to the property, (e.g.: appliances).

CLOSED MORTGAGE

A mortgage that CANNOT be prepaid or repaid in advance of the maturity date without penalty.

CLOSED MORTGAGE

A reference to the absence of the privilege to accelerate repayment during the term of a mortgage either by bulk payment(s) or increase to scheduled remittances.

CLOSING

See Date of Completion

CMHC (Canada Mortgage and Housing Corporation)

This is a Crown Corporation set up under the National Housing Act (NHA) to insure Lenders of high ratio mortgages against losses in case of default by the Borrower.

CMHC MORTGAGE

Mortgage insured by CMHC. See High Ratio Mortgage.

CO-COVENANTOR

An individual who contractually undertakes to discharge the responsibilities of the Borrower in the event of the Borrower's default.

COLLATERAL MORTGAGE

A mortgage which secures a loan given by way of a promissory note.

COLLATERAL SECURITY

An additional form of security, pledged to reduce the risk of a mortgagee.

COMMITMENT

A written notice from a Lender who advises of approval to advance a specified amount of funds under certain conditions.

COMMON AREAS

Lands or improvements on land that are designated for common use and enjoyment by all occupants, tenants or owners. A pool, tennis court, hot tub or common halls would all be part of the Common Area.

COMMON LAW

That part of the law formulated, developed and administered by the old common law courts, based originally on unwritten common customs.

COMMON TENANCY

The ownership of property by two of more persons, where on the death of one, his share is credited to his own estate.

COMPLETION

The date where the Real Estate transaction is legally concluded in the Registry Office. The Purchaser pays his money on this date and the Vendor receives it.

COMPLETION LOAN

A mortgage loan disbursed following the satisfactory completion of construction.

COMPOUNDED

Indicates the frequency with which interest is computed and added to the principal to arrive at a new actual balance. The essential point to remember if you are a Borrower, is the less frequent the compounding, the better deal for you. If you are a Lender (or saver at the bank) the more often the frequency of compounding, the more you will get in return. In Canada, Lenders, generally compound mortgages semi-annually.

COMPOUND INTEREST

Interest which, during the life of the loan is charged or calculated at regular intervals and if not immediately paid will, in subsequent period, earn interest itself.

CONDITION

A fundamental term of a contract, a breach of which allows the injured party to terminate the contract and/or sue for damages or Specific Performance.

CONDITION PRECEDENT

Legal term for a "subject to" clause. In contract law, a condition precedent calls for the happening of some event or the performance of some act the contract shall be binding upon the parties.

CONDITION SUBSEQUENT

A condition referring to a future event upon the happening of which the contract becomes no longer binding on the parties.

CONDITIONAL SALE

A contract for the sale of goods by which the seller reserves ownership (but not possession) of the goods until the price has been paid (usually by installments). Such contracts are regulated by the Personal Property Security Act.

CONDO OR CONDOMINIUM

A form of ownership of Real Property. The purchaser receives title to a particular unit and a proportional interest in certain common areas (halls, entry, etc). A condominium generally defines each unit as a separately owned space to the interior surfaces of the perimeter walls, floors, and ceilings. Title to the common areas is in terms of percentage and refers to the entire project less the separately owned units. Generally speaking, if you owned a condo in a project of 10 identical units, you would have title to your unit plus 1/10th of the common areas.

CONSIDERATION

Something of value given to make a promise of repayment enforceable.

CONSTRUCTION ADVANCE

Moneys advanced to the Borrower under a construction loan.

CONSTRUCTION LEIN

A claim against property pursuant to labour, services, or materials supplied. (Builders Lien).

CONSTRUCTION LOAN

A short term loan made to a builder for construction of buildings, usually to be paid out by another mortgage upon final completion. Also a description used in reference to a mortgage which is advanced in pre-determined stages, according to the amount of work completed.

CONSTRUCTION LOAN AGREEMENT

An agreement between a Lender and a builder setting out terms of an agreement - loan amount, rate, method of drawing funds, conditions for advancing.

CONTRACT

An agreement between two or more parties given receipt of lawful consideration to do or refrain from doing some act.

CONVENTIONAL MORTGAGE

A mortgage where the loan does not exceed 75% of the value of a house/property. For example, a $150,000.00 mortgage on a purchase price of $200,000.00 would be classified as a Conventional Mortgage. Mortgages that exceed this limit must be insured by CMHC (or similar insurance provider).

CONVERTIBLE MORTGAGE

A mortgage where a Borrower has a "window" of opportunity to renegotiate the term of the mortgage. This is a very worthwhile feature and should be investigated for persons wishing to wait a while before committing to a long term mortgage. The rates for convertible mortgages are typically 1/2 of 1% less than an "open" mortgage.

CONVEYANCE

The transfer of property ownership. Also, the written instrument whereby such transfer is effected. Conveyance includes a mortgage, charge, and lease, etc.

CO-OPERATIVE

The ownership of a separate amount of space in a multiple dwelling or multiple-occupancy building with proportioned tenancy in common ownership of common elements. Used jointly with other owners, however, the owner does not have clear title to a specific unit, but becomes a shareholder of the corporation which owns all the property and occupies by way of a tenancy agreement subject to shareholders agreement administered by an elected board of directors.

CO-OWNERSHIP SYNDICATE

A real estate syndicate organization in which two or more investors are owner of an undivided interest in real property.

CORPORATION

A business entity which is owned by shareholders who decide on the general policies of the company through their elected board of directors. A corporation is a separated legal entity and therefore has the right and liabilities of an individual. Shareholders do not share directly in the income of a corporation, but they may receive Dividends.

COVENANT

An agreement contained in an instrument creating an obligation. It may be positive, stipulating the performance of some act. It may be negative or restrictive, forbidding the commission of some act.

COVENANTOR

In a mortgage this means the Borrower.

CREDIT ANALYSIS

An investigation of a loan applicant's ability to repay.

CREDITOR

A person to whom a debt is owed. Contrast to Debtor.

CROSS-COLLATERALIZATION

A reference to security involving various liens held in support of one or more advances made by a Lender to a Borrower.

CROSS CORPORATE GUARANTY

A guarantee by one corporation to pay the lease obligations of another corporation.

CURRENT ASSETS

Those assets which will be converted into cash, sold, or consumed within one year or the normal operating cycle of a business, whichever is longer, Current Assets may include Cash, Marketable Securities, Accounts Receivable, Investments, and prepaid expenses.

“D”

DAMAGES

Compensation or indemnity for loss owing to breach of contract.

DATE OF COMPLETION

The date specified by an agreement of purchase and sale, when the purchaser is to deliver the balance of money due and the vendor to deliver a duly executed deed.

DEBT SERVICE

The amount of principal and interest payments made under a mortgage.

DEFAULT

Failure to fulfill an obligation.

DEFERRED INCOME

An accounting method of dealing with income that is received but not included in a statement of earnings as normal earnings.

DEFICIENCY

An insufficient payment, often relating to an amount recovered under a power of sale or foreclosure action.

DEMAND NOTE

Payment is made on demand, usually within a few days notice to the Borrower.

DEPOSIT

Payment of money or other valuable consideration as pledge for fulfillment of contract.

DEPRECIATION

The amount by which the value of improvement has decreased over time as a result of wear and tear or change in taste. Depreciation can be classified as physical or functional and curable or incurable.

DEPRECIATED REPRODUCTION COST

Appraisal method by which the cost of replacing a structure, minus depreciation, gives the depreciation reproduction costs.

DISCHARGE OF MORTGAGE

A document executed by the mortgagee, and given to the mortgagor when a mortgage loan has been repaid in full before, at, or after the maturity date.

DISCLOSURE STATEMENT

A statement contained in a consumer credit transaction in order to disclose complete credit terms and interest rates.

DISCOUNT

Reduction in product price or cost of a service. A discount if the difference between the nominal face value of a loan and actual cash received by the Borrower because interest is paid at the beginning of a loan based on the sum to be repaid at maturity.

DISCOUNTED CASHFLOW ANALYSIS

This is a method of analysis that calculates the true value of an investment in terms of the present value, i.e. what the investment ifs worth now, although it is spread over a number of years. To compensate for future earnings a discount factor is added in so that a real comparison can be made between an investment with quick return and one that is placed over a number of years.

DISCOUNTED LOAN

The face value of the loan minus the interest or discount charged by the Lender is the amount actually advanced to a Borrower.

DOMINANT TENEMENT

The estate which derives benefit from an easement over a subservient estate, as in a Right-of-Way.

DOWER INTEREST

A wife's interest in the lands of her husband accruing to her by virtue of the marriage.

DOWNSIDE LEVERAGE

Occurs where the debt service on a mortgage exceeds the yield on an investors' property, thereby reducing cash flow.

DRAWEE

The person, bank, or corporation on whom a bill, note or cheque is drawn from and from whom payment is expected by the payee or his assignee.

DRAWER

The person or corporation who writes a cheque or note for payment to a third party. In the case of a bill of exchange, the drawer is the creditor and is usually the payee.

“E”

EASEMENT

A right to the limited use or enjoyment of land. The Easement is usually held by another and is a registered interest in land to enable sewer or other municipal services, power lines, roads or to allow for access to the property.

EASEMENT

The right acquired for access over another person's land for a specific purpose, such as for a driveway or public utilities.

ECONOMIC DEPRECIATION

Loss in value of property due to eternal influences related to the property or not controlled by the owner.

EFFECTIVE ANNUAL

An annual interest rate that is compounded once a year. This is the rate used for disclosure purposes under the B.C. Mortgage Brokers Act.

EFFECTIVE GROSS INCOME

The estimated gross income less allowances for vacancies and rent losses.

EFFECTIVE INTEREST RATE

The actual interest rate on investment where a debt or loan was bought at discount or at a premium.

ENCROACHMENT

A fixture, such as a wall or fence, which illegally intrudes into or invades on public or private property diminishing the size and value of the invaded property.

ENCUMBRANCE

Outstanding claim or lien recorded against property, or any legal right to the use of the property by another person who is not the owner.

END LOAN

The mortgage loan to the final customer, such as a purchaser of a condominium unit.

EQUITABLE MORTGAGE

The transfer of equity in property as security for a debt. Any mortgage registered after the first mortgage.

EQUITY

When speaking of real estate equity, this is defined as the difference between the value of the property and the amount of mortgages secured against the property.

EQUITY OF REDEMPTION

The right of the mortgagor to reclaim clear title to the real property upon full repayment of the debt.

ESCHEAT

The reversion of property to the state in event the owner thereof dies leaving no will and having no legally qualified heir to whom the property may pass by lawful descent.

ESTATE

The degree, quantity, nature and extent of interest which a person has in real property.

ESTOPPEL CERTIFICATE

A written statement or certificate which states certain facts upon which the receiver of the statement or a third party may rely, e.g.: Lender's estoppels statement as to a purchaser or property. The Lender cannot later deny the truth of these statements because a third party has relied and acted upon them.

EXACT DAY INTEREST

Interest calculated on the basis of 365 days per year or 366 days in a leap year.

EXCULPATORY CLAUSE

A clause which excuses one party from personal liability in the event of a default.

EXPROPRIATION

The act of forcefully taking private property for public use.

EXTENSION AGREEMENT

The lengthening of a term on a contract to extent the maturity date; or to permit more time for the performance of an obligation or condition; or the extension of the coverage of a lien to include more property.

“F”

FAIR MARKET VALUE

The price or value at which property is transferred between a willing and informed buyer and a willing and informed seller, each of whom has a reasonable knowledge of all pertinent facts and neither being under any compulsion to buy or sell.

FEASIBILITY ANALYSIS

An analysis to determine the feasibility of a project. Details of construction costs, projected income from the project plus location and economic factors affecting the project will be required. Similar to a feasibility study by a developer conducted to decide whether to proceed with plans and required by the Lender to decide whether to provide funds.

FEE SIMPLE

The legal term for the maximum interest in land available to a person, or the maximum of legal ownership. Equivalent in many ways, for practical purposes to absolute ownership.

FIDUCIARY

A person who holds a position of trust with respect to someone else and is obliged, by virtue of the relationship of trust, to act solely in the other persons benefit.

FINANCIAL STATEMENTS

Accounting statements that provide specific information about a company's financial position. They include the Profit & Loss Statement also know as the Income Statement, the Balance Sheet, and the Statement of Cash Flows. Financial statements can generally be audited by an outside CPA firm or not be audited and, thus, prepared by the company.

FIRST MORTGAGE

The mortgage agreement which has first claim on the property in the event of default.

FIRST MORTGAGE BOND

Bonds issued by a corporation secured upon the property and earnings of the issuing corporation.

FIRST TIME HOME BUYERS

Defined by CMHC as one of the buyers who has not owned Real Estate property in the last 5 years. Different definition as it applies to BC Purchase Property Tax Exemption, where one must have NEVER owned a house anywhere.

FIXED RATE MORTGAGE

This is the usual form of mortgage where interest rate remains the same during the entire life of the loan.

FIXTURES

Permanent improvements to property that may not be removed at the expiration of the term of lease or tenure.

FLOATING RATE OF INTEREST

Rate of interest which fluctuates according to prime lending rates, e.g.: 2% above prime rate usually chargeable on short term loans such as construction loans.

FLOOR TO CEILING LOAN

A permanent loan or advance made in two stages, (a) on completion of construction according to agreed upon terms and conditions, and (b) the balance advanced upon occupancy or upon cash flow requirements.

FORECLOSURE

Remedial court action taken by a mortgagee when default occurs on a mortgage, to cause forfeiture of the equity of redemption of the mortgagor.

FREEHOLD

The ownership of a tract of land on which the building(s) are located. The oldest and most common typed of ownership of real estate.

FULLY AMORTIZED LOAN

A mortgage loan wherein the stipulated repayments repay the loan in full by its maturity date.

FURTHER CHARGE

A second or subsequent loan of money to a mortgagor by a mortgagee, either on the same or on an additional security.

“G”

GDS or GDSR

See Gross Debt Service Ratio

GROSS DEBT SERVICE RATIO (GDSR or GDS)

The measure by which Lenders define the ability of the Borrowers to pay for their mortgage debt. This is the total mortgage debt service expressed as a percentage of the Borrowers income. This ratio is calculated by dividing the total of Principal, Interest, Taxes and Heating component into the Borrowers total income.

G/E CAPITAL or GEMCO

The General Electric Capital Corporation or GEMCO insures high ratio mortgages for Lenders.

GRADUATED AMORTIZATION MORTGAGE

A special method of repayment on a mortgage whereby repayments in the initial period are low and are gradually later stepped up at a higher rate. Graduated payments mortgages were devised to enable lower income families to become home owners.

GRANT

A technical term used in deeds of conveyance to indicate a transfer of an interest or estate in land.

GRANTEE

The party to whom an interest in real property is conveyed (the buyer).

GRANTOR

The person who conveys an interest in real estate by deed (the seller).

GROSS DEBT SERVICE (GDS)

The percentage of gross annual income required to cover payments associated with housing.

GROSS DEBT SERVICE RATIO

Allowable ration of payments for principal, interest and taxes to gross income.

GROSS INCOME

The scheduled income from the operation of the business of the management of the property, customarily stated on an annual basis. Income before deductions for tax or expenses.

GROSS RENT MULTIPLIER

Method of appraising the fair market value of property by multiplying the gross rents by a factor which varies according to the type of property, and the location of the property.

GUARANTEED INCOME MORTGAGE

A guarantee included in a purchase money mortgage by a seller-mortgagee that there will be a minimum cash-flow or net operating income to the purchaser mortgagee. The guarantee is limited to a short period and may be combined with a management contract whereby the seller as manager will operate the property.

GUARANTOR

A third party without interest in the property who agrees to assume responsibility for a debt in the event of default by the mortgagor.

“H”

HIGH RATIO MORTGAGE

A mortgage for more than 75% of the value of the purchase price or value. These have to be "insured" by CMHC or GEMCO and a premium is added to the loan. For example if you had a loan of $100,000.00 against a purchase price of $115,000.00, a "premium" of $2,500.00 would be added to the loan. Therefore, the Borrowers would start with an indebtedness of $102,500.00. It should be pointed out that most all Lenders insure their High Ratio mortgages this way.

HOLD BACK

An amount of money retained by a construction Lender or owner until satisfactory completion of the work performed by a contractor.

“I”

INTER-ALIA MORTGAGE

Also referred to as a Blanket Mortgage. The words "Inter-Alia" are Latin for "Amongst other things". Therefore, an Inter-Alia Mortgage would cover more than one property. Typically, it is a mortgage covering 2 or more properties.

INTEREST

Consideration in the form of money, paid for the use of money. Usually expressed as a percentage, compounded semi-annually. Can also mean a right, share or title in property.

INTEREST RATE DIFFERENTIAL (IRD)

Usually refers to compensation due to the Lender on payout. This is the value of the difference between the contractual rate of the mortgage and the rate the Lender can now get for his money. Example: A mortgage has a term of 3 years to go at 13% and now the Lender can only get a market rate of 8%. You want to pay out your mortgage. The Lender may ask you to pay the difference in interest. This can add up to thousands of dollars. Payout penalties are usually quoted as the "greater" of IRD or 3 months interest penalty. Borrowers not asking about the IRD may be in for a shock if rates decline considerably.

IMMEDIATE PARTICIPATION LOAN

A loan in which all of the partners contribute their share immediately.

INCOME/EXPENSE RATIO

Ratio of operation expenses to gross income and expressed as a percentage (also known as operating ratio).

INCOME PROPERTY LOAN

A loan which is secured on property which already has a source of income, e.g.: Rents which will cover the debt service payments on the loan.

INCOME TAX

That part of taxable income which a person or corporation is required to forward to Revenue Canada Periodically.

INDENTURE

A document of deed, usually in duplicate, expressing certain objects between the parties.

INJUNCTION

A judicial process or order requiring the person to whom it is directed to do or refrain from doing a particular thing.

INSTRUMENT

A form of written legal document.

INSURABLE VALUE

The term is used conventionally to designate the amount of insurance which may be carried on destructible portions of a property to indemnify the owner in the event of loss.

INTER-ALIA MORTGAGE

A single registered document which encumbers more than one property.

INTEREST (Rate)

The profit of a loan as expressed on a percentage basis.

INTEREST ADJUSTMENT

A date from which interest on the mortgage advanced is calculated for your regular payments. This date is usually one payment period before regular mortgage payments begin, as interest payable is due from the date your mortgage is advanced.

INTEREST ESCALATION

Rate of interest on a loan is raised periodically during the term of the loan to encourage early repayment.

INTEREST ONLY LOAN

Borrower pays back interest only on the loan and there is no amortization until later or until the end of the term. This may occur when a purchaser wishes to resell property after a short period or if he wishes to build up enough income from the property before amortization.

INTERIM FINANCING

Interim loans are used to bridge the gap between the construction loan and the permanent loan (hence bridge loans) lasting form one to three years.

INTESTATE

A person who dies without a will, or leaves one which is defective in form, in which case the estate descends by operation of law to the next of kin.

IRREVOCABLE

Incapable of being recalled or revoked; unchangeable, unalterable.

“J”

JOINT AND SEVERAL NOTE

Promissory Note on which there are two or more promisors’ who are jointly and severally liable.

JOINT TENANCY

Ownership of land by two or more persons whereby, on the death of one, the survivor or survivors take the whole estate.

JUDGMENT

An award granted to a successful party to litigation by the court. The award may include a specific amount of money to be paid to the successful party by the unsuccessful party to the litigation.

“K”

KICKER

An extra bonus or additional payment over and above the fixed interest already paid to an investor e.g.: A percentage of gross profits or cash flow.

“L”

LAND ACQUISITION LOAN

Loan advanced to acquire land as opposed to improving land or buildings.

LAND CONTRACT

A contract drawn between a buyer and seller for the sale of property.

LAND DEVELOPMENT LOAN

Loan advanced for the purpose of developing raw land for residential and related uses.

LEASEHOLD

A type of interest in a property that is certain only for a specified period of tie granted by contract.

LEASEHOLD APPRAISAL

A method of estimating the value of leasehold property.

LEASEHOLD MORTGAGE

A mortgage given by a lessee on the security of the leasehold interest in the land.

LEGAL DESCRIPTION

A written description by which the property can be definitely located, and which is acceptable for registration in a land registry system.

LEGAL MORTGAGE

A transfer of a legal estate or interest in property for the purpose of securing the repayment of a debt.

LENDING VALUE

An independent appraiser's value interpreted by the Lender as to the worth of a property in the current market given a reasonable time period to sell the property.

LESSEE

Tenant under a lease.

LESSOR

The person who grants us of the property under lease to a tenant.

LETTER OF COMMITMENT

Letter written by the Lender containing the amount of the loan, specified interest rate, term of loan, and specific conditions.

LETTER OF CREDIT

Letter issued by a bank or other lending institution promising payment to a third party in accordance with the terms of the agreement. Letters of credit may be used in situations where a deposit is required or a security, e.g.: where a builder is about to sign a contract and has to put up security that the job will be finished; or a security deposit under a long term lease.

LEVERAGE

Upside leverage in real estate occurs when the yield or net return on property exceeds debt service for a loan. Downside or reverse leverage occurs when the debt service is greater than the net return on investment.

LIABILITIES

The amount of debts a person owes.

LICENCE

With respect to real property, a privilege to enter onto premises for a certain purpose. However, this privilege does not confer upon the licensee any title interest or estate in such property (e.g., exclusive right to possession of the property). Example of a licence includes a hotel suite where monthly rates may be available but the innkeeper has the right to enter the suite at his pleasure.

LIEN

A legal claim against a property for money owed.

LIEN HOLD BACK

A percentage of the contract price or estimated cost of work to be done which is held back from the mortgage advance.

LINE OF CREDIT

A maximum credit limit allowed by a bank to a Borrower, as long as the Borrower maintains an acceptable balance on account or has a good credit rating. The credit line will vary from time to time according to the changing circumstances of the Borrower or the bank.

LIS PENDENS

A legal document giving notice that an action or proceeding is pending in the courts which affects the title to the designated property.

LOAN COVERAGE

The ratio of net operating income to debt service – in general loan coverage of 1.3 to considered adequate for a loan to value ratio of 75%.

LOAN FEE

A charge for making a loan in addition to the interest charged to the Borrower.

LOAN LOSS RESERVE

A reserve shown on a balance sheet of a real estate company as provision for any future losses in assets.

LOAN ORIGINATION

Analysis of loan applications from prospective purchasers to determine if they meet with requirements and if so, the Lender will issue a commitment letter.

LOAN PORTFOLIO TURNOVER

The average length of time required for the turnover of mortgage loans, i.e.: until maturity.

LOAN PROCESSING

Upon application and approval of a loan, the Lender has to go through a fairly standard procedure to finalize and disburse the loan such as the setting up of files, ordering of credit reports, verification of employment, bank accounts, etc.

LOAN RATIO

The ratio of the principal amount of the loan to the lending value of the property.

LOCK-IN CLAUSE

A clause which restricts prepayment of a loan during a specified period of the whole term of the mortgage. This ensures that the Lender receives a stipulated return on his investment and discourages shopping around for another loan.

L.T.V. (LOAN-TO-VALUE RATIO)

The ratio of the loan to the lending value of a property, expressed as a percentage.

“M”

MARGIN OF SAFETY

A measure of the extent to which a loan is protected by property values of operating income. In the case of a mortgage, the margin of safety is the excess of equity (at fair market value) above the outstanding amount of the loan.

MARKETABLE TITLE

A title which a court of equity considers to be so free from defect that it will enforce acceptance by a purchaser.

MATRIMONIAL HOME

Any property in which a person has an interest and that is or has been occupied by the person and his or her spouse as their family residence. Condominiums, co-operatives, and leasehold interests can be matrimonial homes.

MATURITY DATE

The last day of the term of the mortgage agreement. A mortgage loan must then be paid in full or the agreement renewed.

MECHANICS LIEN

A claim against the state or interest of the owner in a property for labour, services, or materials supplied to it.

METES AND BOUNDS

A system of land description whereby all boundary lines are set forth by use of terminal points and angles - mete referring to a limit or limiting mark, and bounds referring to boundary lines.

MIXED USE DEVELOPMENT

A large scale real estate project which is developed for a number of uses. An example of mixed use development is a shopping centre complex.

MORATORIUM

Legislation enacted to assist debtors by postponing or suspending their contractual payments.

MORE OR LESS

Term often found in a property description intended to cover slight, unimportant or insubstantial inaccuracies to which both parties are willing to assume risk.

MORTGAGE

The legal pledge of real estate as security for a loan.

MORTGAGE BANKER

More prominent in the USA as principals of mortgage funds.

MORTGAGE BOND

A bond issued by corporations and secured by a mortgage on their property.

MORTGAGE BROKER

A person who originates real estate loans and allocates mortgage funds. These funds are placed on behalf of others, through negotiation of Lenders and Borrowers for the best possible arrangement and satisfaction of all concerned. Licensed in most provinces by the Ministry of Financial Institutions. Could also be known as an underwriter, correspondent or investment dealer in a mortgage transaction.

MORTGAGE COMMITMENT

A formal indication by a lending institution that it will grant a mortgage loan on property, in a certain specified amount and on certain specified terms.

MORTGAGE DEBENTURE

Synonymous with mortgage bond.

MORTGAGEE

The Lender in a Mortgage Transaction.

MORTGAGEE IN POSSESSION

A mortgagee goes into possession by entering into actual occupation of, or by obtaining the receipt of the rents of the mortgaged premises.

MORTGAGING OUT

Term applied to a mortgage which exceeds the current value of the property on which it is secured. This type of mortgage may be obtained on improvable property where the security is based on future value and future earnings which are expected to exceed construction costs.

MORTGAGOR

The Borrower in a Mortgage Transaction.

MORTGAGE LOAN

An agreement by which a sum of money is borrowed and a promise to repay is given, wherein as a further security the Borrower gives to the Lender a conveyance or charge on property which he owns.

MORTGAGE NOTE

A promissory note executed in favor of the Lender giving him an encumbrance or lien on the Borrower's property. A mortgagor is usually personally liable on the note.

MORTGAGE PORTFOLIO

Several mortgages held by a mortgagee, Lender or broker en bloc.

MORTGAGE POSTPONEMENT

The process whereby a mortgagee may permit the Borrower to renew or replace an existing mortgage that falls due prior to the maturity date of the subject mortgage.

“N”

NATIONAL HOUSING ACT MORTGAGE

A first mortgage, originated by an approved Lender, granted under the terms of, and insured under, the National Housing Act 1954.

NEGATIVE CASH-FLOW

Where operating costs exceed gross rental income or debts.

NET INCOME

The amount which revenues exceed expenses in any given time period. Contrast to Net Loss.

NET OPERATING INCOME (NOI)

The balance remaining after deduction of operating expenses from gross receipts and gross rental, but not including the deducting of debt service on mortgages. Free and clear return on property is calculated by the ratio of NOI to total investment including mortgages and equity. This gives a direct means of comparing the return on different properties.

NET PROCEEDS

The face value of a loan less all brokerage fees, appraisal costs and other charges.

NET RATE OF INTEREST

The interest rate received by a mortgage Lender net of the servicing fee deducted by a loan correspondent, etc.

NET WORTH

The residual after deducting Assets from Liabilities

NOMINAL INTEREST RATE

An interest rate quoted as a rate per annum; it is equal to the interest. Of Interest rate per compounding period multiplied by the number of compounding periods. (For example: j2 = 10%; j4=12%; j12=11.5%)

NON-RECOURSE LOAN

A clause in a loan which waives personal liability of the Borrower on the loan.

NOTICE D.O.R.

Notice filed in court by mortgagor under foreclosure proceedings that s/he desires an opportunity to redeem.

“O”

OBLATORY ADVANCE

An advance made according to terms of a pre-existing construction loan agreement or mortgage.

OFFER TO PURCHASE

A written proposal to purchase real estate that becomes binding upon acceptance of the vendor.

OPEN END MORTGAGE

A mortgage under which the Lender has the option of advancing more funds where, for example, the value of the property is anticipated to increase.

OPEN MORTGAGE

A mortgage that can be prepaid at anytime during the contract, and before maturity, WITHOUT penalty.

OPEN OR CLOSED

The restriction or denial of repayment rights until the maturity of the mortgage is a closed mortgage. If specified on document as open, then mortgagor can pay extra payments of principal sums at any time or at specified times, with or without repayment penalty.

OPERATING EXPENSES

Generally speaking, all expenses, occurring periodically, which are necessary to produce net income before depreciation. Under some conditions these expenses are placed in two categories, namely, operating expenses and fixed charges.

OPTION

A right give by the owner of property to another (for valuable consideration) to buy certain property within a limited time at an agreed price.

ORDER ABSOLUTE

Judgement taken against a mortgagor, extinguishing the equity of redemption.

OWNER

The lawful possessor of the title to real property.

“P”

PACKAGE LOAN

Combination of two types of loan, e.g.: construction loan and permanent financing. The Borrower benefits by only having to negotiate with a single Lender and only having to pay a single set of closing costs.

PARTIAL DISCHARGE

A discharge of a definite portion of the mortgage lands usually given after the mortgagor has prepaid a specific portion of the mortgage debt.

PARTICIPATION LOAN

An agreement whereby two or more Lenders share in advancing a portion of a loan made by the originating or lead bank. Terms of the agreement set out a method of apportionment and interest rates. The lead Lender generally services the loan for which it receives a fee.

PARTNERSHIP

1) An arrangement whereby individuals join together to lose money and/or;
2) An arrangement whereby in the beginning a general partner has the experience and the limited partners have the money and in the end, the general partner has the money and the limited partners have had the experience.

PERCENT PAID OFF

The percent of principal which is paid off at a given time under an amortization schedule, i.e.: equity build-up.

PERCENTAGE RENT PLUS MINIMUM

A percentage rental which must be paid in addition to the minimum, i.e.: minimum rent is not credited against percentage rent payable.

PERCENTAGE RENTAL AGAINST MINIMUM

A rental paid under a percentage lease whereby rent paid by a tenant varies according to volume of business, e.g.: a percentage of gross receipts, sales or revenue, and paid to the extent that it exceeds a minimum rental.

PERMANENT FINANCING

A long-term mortgage usually intended to finance both land and improvements after completion of construction and used to pay off a construction loan.

PERSONAL LIABILITY

A person liable on a debt to the full extent of his entire assets, as opposed to limited liability where a maximum or a ceiling is fixed on the amount of assets that can be drawn upon to satisfy a debt. Joint and several liability fixes the liability of each individual Borrower for the total debt; joint liability binds all the Borrowers together in one action; and several liability fixes the liability of each Borrower to the extent of his share of the debt.

PERSONAL PROPERTY

All property except land and the improvements thereon.

POLARIS

The Province of Ontario Land Registration Improvement System's new simplified method of registration of transfer, charge, discharge, etc.

POSSESSION DATE

Date on which the purchaser is entitled to possession of the property.

POSTPONEMENT CLAUSE

A junior mortgage may contain a postponement clause, by which the mortgagee permits the Borrower to renew or release an existing first mortgage that falls due prior to the maturity date of the junior mortgage.

POWER OF ATTORNEY

A document conferring authority to one person to act as another's agent on his behalf.

POWER OF SALE

The right of a mortgagee to force sale of the property without judicial proceedings should default occur.

PREPAYMENT CLAUSE

A clause inserted in a mortgage, which gives the mortgagor the privilege of paying off all or part of the mortgage debt in advance of the maturity date.

PREPAYMENT PENALTY

The sum of money (the amount of extra interest as set out in the mortgage document) a mortgagee may require from a mortgagor to exercise the option in a mortgage to prepay any outstanding principal.

PRE-QUALIFICATION

An interview with a client (usually) prior to the writing of an offer to purchase real estate in order to determine the applicants qualifications for mortgage purposes.

PRIME RATE

The rate charged by banks to their most credit-worthy Borrowers. Sometimes also referred to as the rate of interest paid on government bonds.

PRINCIPAL

The amount of debt (actually borrowed), exclusive of accrued interest, remaining on a loan.

PRIOR CHARGE

An encumbrance ranking in priority to the mortgage in question.

PRIOR ENCUMBRANCE

A claim on the property, ranking in priority to the mortgage in question.

PRO FORMA (Statement)

A financial statement of the gross income, operating costs and net operating costs and net operating income for a specified financial period, e.g.: one year, using specified assumptions.

PROGRESS ADVANCES

Loan advances made on a property under construction whereby the Lender makes advances on the basis of the retention at all times of an amount of the loan which in his/her opinion will be sufficient to complete the building should the Borrower fail to complete it.

PROJECTED INCOME

Estimated income from property.

PROMISSORY NOTE

A written document acknowledging a debt and promising payment.

PROPERTY

Refers to the rights which an individual enjoys by virtue of his/her ownership.

PURCHASE-MONEY MORTGAGE

A mortgage loan taken back by the vendor of property in lieu of purchase money in order to help finance the purchaser.

PURCHASE PROPERTY TAX

In British Columbia, we have a Purchase Property Tax which applies to most properties. There are exemptions for First Time Buyers. Generally, the tax is 1% of the first $200,000.00 purchase and 1% of the balance. There are property purchase price limits. Generally, again, the tax applies on any purchase over $250,000.00 (depending on where you are buying).

PURCHASER'S STATEMENT

A closing statement in a real property transaction which indicates the balance of cash required from the purchaser to complete the transaction.

"Q", “R”

REAL PROPERTY - REAL ESTATE PROPERTY

Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals and the interest, benefits and inherent rights thereof. Sometimes called Real Estate.

“S”

STATEMENT OF ADJUSTMENT

A closing statement in a real property transaction whose format is structured by debits and credits.

STRATA FEES

Monthly levies by the corporation owning the Condominium for the maintenance of common areas, cleaning, reserves for repairs to major common areas like the roof, etc.

SUB-MORTGAGE BROKER

A defined term in the Mortgage Broker Act. Basically, an individual employed by the mortgage broker who satisfies any one of the following requirements:
a) Carries on a business of lending money secured in whole or in part of mortgages, whether the money is his own or that of another person.
b) Holds himself out as, or by an advertisement, notice or sign indicates that he is, a mortgage broker.
c) Carries on a business of buying and selling mortgages or agreements of sale.
d) In any one year, receives an amount of $1000.00 or more in fees or other consideration, excluding legal fees for arranging mortgages for other persons.
e) During any one year, lends money on the security of 10 or more mortgages.

SURVEY

A formal report by a qualified Land Surveyor on the mathematical boundaries of land, showing land of buildings, physical features and quantity of land.

“T”

TAX RATE

The number of dollars pre $1000.00 worth of actual value which is payable in property taxes

TDS or TDSR

See Total Debt Service Ratio.

TENANTS AGREEMENT

Contract between the landlord and the tenant, pertaining to the letting of residential premises.

TENANTS IN COMMON

Where two or more persons acquire interests in a single property. Each may sell or bequeath their interest and in the event of death, their interest becomes a part of their estate.

TERM

The amount of time that the contract is written for and that the interest rate is guaranteed for. Not to be confused with "Amortization". Typically in Canada terms range from 1 to 5 years.

TOTAL DEBT SERVICE RATIO (TDSR or TDS):

Add all other debt payments to the GDSR and measure as a percentage of the total income of the Borrower. Suppose in the example of the GDSR above the Borrower had a monthly car payment of $300.00 on top of his PITH (principal, interest, taxes, heat) for a total monthly obligation of $1,650.00. This represents 33% of the Borrowers total income. Lender will usually allow up to 40 or 42% maximum TDS.

TRANSACTION RECORD SHEET

A form, prescribed by the Superintendent of Real Estate, which contains certain required information on each transaction, including every transaction where a deposit is received and paid into the real estate agent's trust account.

“U, “V, W”

VARIABLE RATE MORTGAGE

A loan being repaid by payments change as the market interest rate changes

VENDOR

The seller.

VENDOR'S STATEMENT OF ADJUSTMENT

Closing statement which shows the net amount of proceeds to be paid to Vendor upon completion of the transaction.

VENDOR TAKE-BACK MORTGAGE

A mortgage taken back by the vendor from the purchaser to facilitate a sale whereby the vendor becomes the mortgagee and the purchaser becomes mortgagor.

“X,Y, Z”

YIELD

The income and/or value appreciation of an investment expressed in terms of the purchase price of that investment. For example, if a property that has sold for $100,000 is worth $2000.00 more one year later, and has generated an income of $5000.00 during the year, the yield to the investor is ($2000 + $5000.00) on $100,000 = .07 or 7%.