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Home Buying Information

[ Your Lawyer's Role | Checklist | An Interview with an Insurance Adjuster | Condo | Glossary of Terms | Land Transfer Tax ]

Glossary of Terms

Please note that the following definitions are not legal definitions, they are simply provided to enhance your understanding of what may be involved in your house purchase.

Agreement of Purchase and Sale (APS)
The APS is a legal agreement that offers a certain price for a home. The offer may be firm (no conditions attached) or conditional (certain conditions must be fulfilled before the deal can be closed).

Amortization
The number of years it takes to repay the entire amount of a mortgage.

Appraisal
An estimate of a property's market value.

Appreciation
The increase of a property's value over time.

Assessment
The value of a property, set by the local municipality, for the purposes of calculating property tax.

Assumable Mortgage
A mortgage held on a property by the seller that can be taken over by the buyer, who then accepts responsibility for making the mortgage payments.

Blended Mortgage
A combination of two mortgages, one with a higher interest rate than the other, to create a new mortgage with an interest rate somewhere between the two original rates.

Bridge Financing
Money borrowed against a homeowner's equity in a property, usually for a short term, to help finance the purchase of another property or make improvements to a property being sold.

Builder
The company responsible for construction of the houses in any particular subdivision. The builder buys the lots from the developer and then builds the dwelling.

Charge
Another name for the mortgage.

Chattels
Usually, chattels are personal effects, which you take with you when you move. Examples are: furniture, art work, etc.

Closing Date
The date on which the sale of a property becomes final and the new owner takes possession. (It is the real estate transaction's completion, when the parties involved agree that all legal and financial obligations have been met, and the deed to the property is transferred from the seller to the buyer.)

Condominium
A residential structure in which apartments or townhouses (units) are individually owned as pieces of real estate while the land and common facilities are jointly owned.

Condominium Corporation
Operates the condominium and the land.

Common Areas
Those areas in a condominium development that are enjoyed by all residents.

Conventional Mortgage
A first mortgage issued for up to 80% of the property's appraised value or purchase price, whichever is lower.

Counteroffer
One party's written response to the other party's offer during purchase negotiations between buyer and seller.

Debt Service Ratio
The percentage of a borrower's gross income that can be used for housing costs, including mortgage payment and taxes (and condominium fees, where applicable).

Deed
A legal document that conveys (transfers) ownership of a property to the buyer.

Developer
The company responsible for taking raw land, subdividing it into lots, bringing in the services (such as sewers and roads) etc., and then selling the lots to the builder.

Discharge
Once the mortgage has been completely paid, the lender registers a Discharge on title to the property. It has the effect of removing the lender’s registered interest in the property.

Easement
A legal right to use or cross (right-of-way) another person's land for limited purposes. This right belongs to someone other than the landowner. A common example is a utility company's right to run wires or lay pipe across a property.

Encroachment
An intrusion onto an adjoining property — such as a neighbour's fence, storage shed or overhanging roof line that partially (or even fully) intrudes onto your property.

Equity
The difference between the price for which a property can be sold and the total of the mortgage(s) and other loans on the property. Equity is the owner's financial "stake" in the property.

Foreclosure
A legal process by which the lender takes possession and ownership of a property when the borrower defaults on the mortgage obligation.

Guarantor
A person who agrees to be legally responsible for paying your mortgage if you default on your payments. A guarantor is only required by the lender in certain circumstances (e.g., you are new to the work force and do not have much money saved).

High Ratio Mortgage
A mortgage for more than 80% of a property's appraised value or purchase price.

Independent Legal Advice
A requirement set out by the mortgage lender that a person who is not the borrower and who is taking on legal responsibility for a mortgage loan (e.g., a Guarantor) consult with an independent lawyer to discuss the commitment that they are making and the risks that they are undertaking.

Interest Rate
The percentage of the principal charged by the lender for borrowing money.

Land Transfer Tax
Payment to the provincial government for transferring property from the seller to the buyer.

Lawyer for Purchaser
The purchaser's lawyer is responsible for assuring that their clients receive good title. The lawyer searches title to the property, obtains information from the municipality, reviews a survey of the property (if available), and advises the client as to the state of title before closing. The lawyer for the purchaser also acts for the mortgage lender (because of economics). The mortgage lender is also interested in the state of title because it is advancing monies on the security of the land. The purchaser's lawyer registers the deed and the mortgage.

Lawyer for Vendor
The vendor's lawyer will deal with any problems that the purchaser's lawyer finds on title that have to be dealt with before the transaction closes. The vendor's lawyer also delivers the keys and a deed on closing in return for money.

Lien
Any legal claim against a property, filed to ensure payment of a debt.

Line of Credit
A loan that is usually used for something other than the purchase of a home (e.g., home renovations). It may be secured (e.g., with a “collateral mortgage”) or unsecured. You can “withdraw” the full amount at one time or use smaller amounts up to the full amount of the loan. The lender charges interest on the total amount withdrawn and not yet repaid.

Maturity Date
The date when the mortgage must be either paid in full or another term negotiated through a renewal agreement. Also called Balance Due Date.

Mortgage

A loan secured against your home (and property). You agree to repay the full amount of the loan, plus interest.

Mortgage Approval

Written approval from the mortgage lender, indicating how much money will be advanced under the mortgage and what conditions must be met for the mortgage. Also called Commitment Letter.

Mortgage Broker

A person who, for a fee that is usually paid by the lender, can help you arrange a mortgage.

Mortgage Commitment
A document setting out that a lender has agreed to lend a buyer a certain amount of money at a certain rate of interest for a specific period of time. It may contain conditions and a date by which the loan must close.

Mortgage Insurance

Government-backed or private-backed insurance protecting the lender against the borrower's default on high ratio (or other types) of mortgages (e.g., Canada Mortgage and Housing Corporation (CMHC), Genworth Financial Inc.).

Mortgage Lender
The mortgage lender provides money for purchase in return for getting a mortgage or charge on the land and future interest/payments.

Mortgagee
The lender.

Mortgagor
The borrower.

Multiple Listing Service (MLS) 
A system for relaying information to Realtors about properties for sale.

Ontario New Home Warranty Program
See Tarion Warranty Corporation.

Open Mortgage
A mortgage with no penalty if the borrower wants to repay the entire mortgage before the end of the term.

P.I.T.
Principal, interest and taxes. Together these make up the regular payment on a mortgage if you elect to include property taxes in your mortgage payments.

Pre-approval of a Mortgage
This is usually given in advance of the formal mortgage application. In pre-approving a mortgage, a lender tells a potential buyer approximately how much money the buyer can afford to borrow.

Pre-payment Penalty
An interest penalty imposed in accordance with the terms of the mortgage when a mortgage is paid off before it comes due.

Pre-payment Privilege
A mortgage feature that allows the borrower to repay a portion or all of the principal balance with or without penalty. This privilege is frequently restricted to specific amounts and times.

Principal
The mortgage amount initially borrowed, or the portion still owing on the mortgage. Interest is calculated on the principal amount.

Purchaser
The purchaser is the person buying the home.

Real Estate Agent
Real estate agents are responsible for bringing together a purchaser and a vendor in a transaction. This is where the "point of sale" occurs - vendor and purchaser sign the Agreement of Purchase and Sale, often without the aid of a lawyer, although the assistance of a lawyer is recommended.

Second (and Third) Mortgages
A mortgage registered on title after the first mortgage, so the second mortgage lender’s rights are secondary to the rights of the first mortgage lender.

Status Certificate
A written statement of a condominium unit's current financial and legal status.

Subdivision
One large piece of land under one ownership being subdivided into several lots to be sold to many purchasers.

Tarion Warranty Corporation
A private corporation set up by the provincial government to administer the Ontario New Home Warranties Plan Act. The act is designed to protect consumers buying new homes by ensuring that they get a quality home. All builders in Ontario must enroll every home in the program.

Term
The length of time that the mortgage agreement exists. At the end of the term, a new term can be negotiated or the mortgage loan is due in full.

Variable-rate Mortgage
A mortgage for which payments are fixed, but whose interest rate changes in relationship to fluctuating market interest rates. If market rates go up, a larger portion of the payment goes to interest. If rates go down, a larger portion of the payment is applied to the principal.

Vendor
The vendor is the current owner of the property who is selling it.

Vendor-take-back Mortgage
When sellers use the equity in a property to provide some or all of the mortgage financing in order to sell the property.

Zoning Regulations
Strict guidelines set by municipal governments regulating how a property may or may not be used.



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