Mortgage Glossary

Adjustments

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

Amortization Period

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

Anniversary Period

Your anniversary period is the 12 month period that starts each year on your mortgage interest adjustment date or, if you have renewed or amended your mortgage, the effective date of your renewal or amendment.

Appraisal

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

Bid

A firm price given to obtain a contract to perform a specific project, which usually includes detailed specifications of the quantity and quality of materials to be used, and notes any exclusions.

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 payment does not change during the term.

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 which cannot be prepaid, renegotiated or refinanced prior to the expiry of the term, except with compensation or breakage costs.

Closing Costs

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

Completion Certificate

A document signed by you acknowledging that the work has been completed to your satisfaction and releasing the contractor from any further responsibility.

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.

Conventional Mortgage

A first mortgage — the principal amount of which cannot exceed 80% of the lesser of the appraised value of the property or the purchase price for the property.

Contractor

An individual responsible for having all the work described in the contract carried out. The contractor is responsible for having the appropriate insurances, for paying the suppliers and workers, and for supervising the quality of all work performed.

Convertible Mortgage

A fixed-rate mortgage which offers the same security as a closed mortgage, but which 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 which 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 installments due under the loan agreement as they become due, or failure to fulfil any other term or condition of the agreement.

Deposit

A sum of money paid by the purchaser on making an offer. Usually held in trust by the real estate broker or the vendor's lawyer or notary until the closing of the sale.

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. This is referred to as "servitude" in the Province of Quebec.

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 mortgages and the market value of the property.

Estimate

A statement of what a job will cost, made by a person or company willing and able to perform the work. A proper estimate should be made in writing and may outline some or all of the terms and conditions that apply. An estimate is less detailed and therefore less reliable than a quote or bid.

Fire and Property Insurance

Before closing date, the purchaser must have fire and property insurance arranged and in effect. Evidence of the 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 6 months and 25 years - and cannot be renegotiated, except upon payment of breakage costs. Interest is calculated semi-annually, not in advance.

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 covered by the mortgage.

Gross Debt Service Ratio

The percentage of the borrower's gross income that will be used for monthly payments of principal, interest, taxes, heating and condominium fees.

Holdback

A portion of each payment that remains unpaid until such time as the job is completed to your satisfaction and/or any liens placed against your property by the contractor's debtors are discharged.

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, calculated semi-annually, not in advance.

Lender

The individual, party or financial institution from whom money is borrowed. Also known as the mortgagee, in the case of a mortgage loan.

Lien Laws

Provincial laws which allow a contractor's unpaid suppliers and workers to make claims against your property for payments that are outstanding to them with respect to work or materials related to your project.

Line of Credit

A type of credit which offers an individual immediate access to any portion or all of a pre-determined amount of cash upon demand. A line of credit may be either unsecured or secured with personal assets such as bonds, term deposits or equity on a home. A secured line of credit results in lower risk to the financial institution and a lower rate of interest to the individual.

Mortgage Default Insurance

This insurance is mandatory for borrowers with a down payment of less than 20%.

Mortgage Life Insurance

Insurance under which the benefits are used to pay off the balance due on a mortgage upon the death of the insured borrower. The intent is to protect survivors from losing their homes.

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 mortgagee to secure repayment of a mortgage loan.

Offer to Purchase

A written contract setting forth the terms under which the buyer agrees to purchase a property. Upon acceptance by the seller, it forms a contract which determines the rights and obligations of the buyer and seller concerning the purchase and sale. It includes the legal and/or municipal description (this may consist of lot numbers as well as street address), purchase price, closing date, mortgage and terms of repayment, and lists specific items included or excluded from the sale.

Open Mortgage

A mortgage which can be prepaid at any time prior to maturity, without breakage costs.

Permits

Formal authorization, usually from your municipality, that allows you to proceed with your renovations.

Plans

The technical drawings — or blueprints — of the project. Should include the specifications.

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.

Quotation (see Bid)

Real Estate Agent

A licensed agent employed to negotiate the purchase and sale transaction between the buyer and the seller.

Servitude (see Easement)

Specifications

A detailed description of the scope of the work and the quality and quantity of materials to be used. The specifications should also clearly indicate how the work will be carried out and what the final appearance will be. The specifications should form part of the contract.

Subcontractor

A tradesperson hired to do specific work such as plumbing, wiring or electrical work that the crew is unable to perform. The subcontractor takes instructions from, is paid by, and is responsible to the contractor.

Survey (see Certificate of Location)

Term

The length of time during which the specific mortgage agreement is effective. 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

Right of ownership of property, and including evidence of such ownership.

Total Debt Service Ratio

The percentage of the borrower's gross income that will be used for monthly payments of principal, interest, taxes, heating and other outstanding loans and debts.

Tradesperson (see Subcontractor)

Variable Rate Mortgage

An interest rate on a mortgage that fluctuates according to changes in the prime lending rate. A variable rate mortgage has payments which are fixed for the term, even though interest rates may fluctuate during that time. If interest rates go down, more of the payment is applied to reduce the principal; if rates go up, more of the payment is applied to payment of 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.