Mortgage Terminology For BC Home Buyers
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 written statement of facts, the contents of which are sworn under oath to be true by the person making the statement. An affidavit is sometimes used in court proceedings as evidence in place of oral testimony.
Agreement for Sale: A contract by which the owner of land (vendor) agrees to sell land to another (purchaser) who aggress to purchase it. The purchaser’s interest is registered in the Land Title Office as a charge against the vendor’s certificate of title. The contract provides that the purchase price will be paid by installments.
Amortization: The number of years needed to fully repay a loan. Most mortgages are amortized over 25 years. This means that by making set monthly payments – each a blend of interest costs and repayment of the original principal – you’ll have paid back the original amount and all the interest in 25 years. You can however choose different amortization periods. A shorter amortization, 15 or 20 years for example, will mean higher monthly payments, but a significantly lower interest cost. Do not confuse amortization with term.
Appraisal: The estimation of the value of a legal interest in land.
Arms Length Transaction: Transaction in which the parties involved are not inclined towards making voluntary concession to each other.
Assessment: Appraisal, usually for real property taxation purposes.
Asset: Items of value owned by a business. Contrast to Liability.
Assumable Mortgage: A Mortgage that allows a purchaser to assume or take over the responsibility and liabilities under the mortgage from a vender.
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.
Borrowing: Incurring an obligation to repay a debt in order to invest or consume more than one currently owns.
Brokerage Fee: Fee charged by a mortgage broker for arranging a loan. 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.
Caveat: A notice registered against the title to land warning those looking at the title that a claim has been made.
CCA: Abbreviation of Capital Cost Allowance.
Chattel Mortgage: A document evidencing a debt owed by the borrower (mortgagor) to the lender (mortgagee). The mortgage is secured by the lender against personal property owned by the borrower as collateral to ensure the repayment of the debt. These mortgages are governed by the Personal Property Security Act.
Closed Mortgages: A mortgage which cannot be fully paid out before expiry of its term.
Completion Date: Date on which the purchase’s solicitor undertakes to the vender that he will pay the balance owing to the vender upon the transfer of title being accepted for registration.
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.
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.
Contract: An agreement between two or more persons which create an obligation to do or not to do a particular thing.
Conventional Mortgage: A traditional mortgage for up to 75 per cent of the appraised value of a property.
Convertible Mortgage: A mortgage that gives the borrower the flexibility to change from a short-term to a longer-term mortgage if it seems advantageous to do so. For example, when interest rates appear to have hit bottom.
Conveyance: The process of transferring interest on land from one person to another way of a transfer document. Conveyancing usually refers to the transfer of title to land but also includes dealings such as assignments, leases, and mortgages
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.
Credit Analysis: An investigation of a loan applicant’s ability to repay.
Creditor: A person to whom a debt is owed. Contrast to Debtor.
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.
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.
Disclosure Statement: A schedule showing the face value of the loan, all costs associated with issuing the loan to the borrower, and the effective annual rate as required by the B.C. Mortgage Brokers Act.
Easement: A limited right of use of another’s land by a landowner for the benefit of his land. The land receiving the benefit is called the dominant tenement and the land granting the benefit is called the servient tenement.
Economic Life: The time span over which a property is employed in its Highest and Best Use
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.
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.
Fixed-rate Mortgages: With this type of mortgage, the interest rate is set at a specific level for a certain term, ranging from six months to five years or more.
Foreclosure: A legal action taken by a mortgagee to obtain possession of a property, by reason of the mortgagor’s default in payment of the principal and or interest of the mortgage debt.
Fully Amortized Mortgage: Loan which is repaid completely by a series of payments over the full duration of the amortization period.
Gross Debt: The percentage of gross income which is the maximum a mortgagor is allowed to pay annually in principal, interest, and property taxes. For example a borrower may pay $270 out of $1000.00 gross income as P.I.T. payments. This ratio is usually expressed as a percentage ie P.I.T. payment can be 27% of gross income. Compare to Loan to Value Ratio.
Gross Income: The amount earned through employment or investment before taking taxes or other deductions into consideration. This amount may or may not be the same as gross income for purpose of mortgage lending.
Income Tax: That part of taxable income which a person or corporation is required to forward to Revenue Canada Periodically.
Interest Adjustment: The process of calculating compound interest payable on the amount borrowed between the day the monies are advanced and the day amortization period starts.
Interest Only Loan: A loan which is serviced by interest-only payments. At the end of the term the full principal plus interest for the last payment period of the loan is still owing.
Interest Rate: The percentage rate that represents the cost of borrowing or the benefit of lending money.
Joint Tenancy: Where two or more persons acquire an equal undivided interest on a property. When one person dies, that person’s share automatically goes to the survivor or survivors.
Judgment: An award granted to a successful party to litigation by the court. The award may included a specific amount of money to be paid to the successful party by the unsuccessful party to the litigation.
Lender Value: The estimated value of a property for lending purposes. It is a long-term conservative estimate of the value of the security as determined by the lender and therefore, does not necessarily equal Market Value or Sale Price.
Liability: Monies owed by business. Contrast to Asset .
License: 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 license include a hotel suite where monthly rates may be available but the innkeeper has the right to enter the suite at his pleasure.
Lien: A claim or charge on real personal property for payment of some debt, lien obligation or duty.
Maturity: The date on which the balance owing on a mortgage becomes due; the final day of the term of a mortgage.
Mortgage: A document evidencing a debt owed by the borrower (mortgagor) to the lender (mortgagee). Registration of the mortgage in the Land Title Office transfers the mortgagor’s interest in land to the mortgagee as security for the repayment of the debt.
Mortgagee: The lender.
Mortgagor: The Borrower.
Negligent Misrepresentation: A legal principle which provides that if in the ordinary course of business, a person seeks information or advice from a another who possesses special skills in circumstances in which a reasonable man would know that his special skills were being relied upon, and the person asked chooses to give the advice without clearly qualifying his answer so as to show that he does not accepts responsibility is it is incorrect then he accepts a legal duty to exercise such care as the circumstances require. If he is incorrect he may be liable for his negligent misrepresentation.
Net Income: The amount which revenues exceed expenses in any given time period. Contrast to Net Loss.
Net Proceeds: The face value of a loan less all brokerage fees, appraisal costs and other charges.
Nominal 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%). Offer: A proposal to so or refrain from doing some specified thing usually followed by an expected acceptance, counter-offer, return promise or act. The person who makes the offer is called the offeror. The recipient of the offer is called the offeree.
Operating Expenses: Those costs which have to be incurred to keep any business going including the business of renting real property.
Possession Date: Date on which the purchaser is entitled to possession of the property.
Power of Attorney: A document conferring authority to one person to act as another’s agent on his behalf.
Prepayment: The act of fully or partially paying off the outstanding balance of a loan at any point during the term of the loan at a time earlier than set out in the contract.
Principal: That portion of the original amount borrowed which still has to be paid back to the lender.
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.
Restrictive Covenant: A covenant restriction the use of the land of the covenantor (the Servient Tenement) for the benefit of land belonging to the covenantee (the Dominant tenement). An example would be a restriction on the height of a building on one piece of land so that adjacent or adjoining lands are not put in shadow.
Statement of Adjustment: A closing statement in a real property transaction whose format is structured by debits and credits.
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: 1. 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. 2. Holds himself out as, or by an advertisement, notice or sign indicates that he is, a mortgage broker 3. Carries on a business of buying and selling mortgages or agreements of sale. 4. In any one year, receives an amount of $1000.00 or more in fees or other consideration, excluding legal fees for arranging mortgages fro other persons. 5. During any one year, lends money on the security of 10 or more mortgages.
Tax Rate: The number of dollars pre $1000.00 worth of actual value which is payable in property taxes 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: With respect to mortgages, a time period at the end of which the outstanding balance of a mortgage is due and payable.
Total Debt Service Ratio: The percentage of gross income which is the maximum amount that a mortgagor is allowed to pay annually in principal, interest and property taxes all other debts.
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.
Variable Rate Mortgage: A loan being repaid by payments change as the market interest rate changes.
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.
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) $100,000 = .07 or 7%