Mortgage Canada 123 - Glossary of Mortgage Terms

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Acceleration Clause
A clause in the mortgage document that accelerates the maturity date of the mortgage; the clause states that upon default, the principal sum of the mortgage and accrued interest is due.

Accrued Interest
Interest that has accumulated unpaid since the last payment date.

Add-On Interest
Interest amount that is added to the principal of a debt and made payable as part of the debt, usually in equal periodic installments.

Adjustable Rate Mortgage (ARM)
A mortgage where the interest rate is adjusted periodically according to movements in a pre-selected index such as the Bank of Canada Prime Rate.

Adjustments on Closing
Two types of adjustments that a buyer can be charged on closing are:

1. prepaid services, where the sellers have prepaid property taxes or certain utilities (the buyers can be charged for the amount of prepayment on a pro-rata basis depending on the date of occupancy), and

2. interest, where the amount of interest required to be prepaid up to the interest adjustment date (the interest adjustment date is the date where the mortgage interest starts accumulating "in arrears".

Affidavit [back to top]
A statement of declaration in writing and sworn or affirmed before an authorized individual.

Agency [back to top]
A relationship which arises out of a contract where an agent is authorized by a principal to engage in certain acts, e.g. dealing with one or more third parties.

Agency Law [back to top]
This type of law defines the underlying working relationship in real estate. Note that this is not legislation or a statute; agency law is common law or case law based on accumulated judgements from court cases.

Agent [back to top]
An individual or corporation licensed by the provincial government to trade in real estate.

Agreement Of Purchase And Sale [back to top]
A written contract to buy property in which the purchaser and vendor agree to sell upon terms and conditions set forth in the agreement.

Amortization [back to top]
The paying down of the principal balance of the mortgage by equal periodic payments (and occasional extra payments) of principal at regular intervals over a target period of time (typically 25 years).

Amortization of a Mortgage [back to top]
The gradual retirement of a mortgage by periodic payments of the principal.

Amortization Period [back to top]
The period of time required to retire a mortgage through periodic payments the principal.

Appraisal [back to top]
An estimate of the current value of the 'subject property' for the lender using (1) a market value comparison approach, which comparing recent sales of similar properties and adding and subtracting the differences in value of the same features in the subject property, or (2) the "depreciated cost" approach, whereby the land value is estimated and added to an estimate of the depreciated building value.

Appraised Value [back to top]
An estimate of property value written by a qualified individual - usually for for mortgage lending purposes (note that an appraisal may not reflect the market value of the property or the purchase price).

Annual Percentage Rate (APR) [back to top]
The yearly interest percentage of a mortgage expressed by the actual rate of interest paid, given the term, rate, amount and cost of arrangement.

Arrears [back to top]
To be in arrears is to be behind in the payments called for as part of the mortgage agreement.

Assessment [back to top]
An "assessment" is the value of a property that is a historical, static estimate of the value of a property used by municipal governments as a basis for calculating annual property taxes.

Assessment Notice [back to top]
An "assessment notice" contains the "assessed value" and is used to calculate the property taxes for the year (property taxes = assessed value * current "mill rate").

Assessed Value [back to top]
An amount assigned to taxable property for the purpose of calculating property taxation.

Assignee [back to top]
One who takes the rights or title of another by assignment.

Assignment of Interest [back to top]

Most Provinces allow a legal assignment of interest in a mortgage to have full legal effect without first having to discharge and recreate the existing mortgage.

This is particularly useful in (1) a mortgage switch, where the costs of transferring lenders could be very high, and (2) second mortgage, where a postponement may be difficult to obtain.

Assignment of Mortgage [back to top]
The assignment of a mortgagee's interest in the mortgage to a different mortgagee.

Assignment of Rent [back to top]
The redirection of rental income to a mortgagee (usually in the event of default).

Assignor [back to top]
One who transfers or assigns the rights or title to another.

Assumable Mortgage [back to top]
The type of mortgage where a qualified buyer can take over a mortgage from the current owner upon the sale of a property.
If a buyer can assume a mortgage, they may do so at a below market interest rate in addition to saving on the legal costs of creating and registering a new mortgage.
" Assumption" of a mortgage entails a simple amendment to the mortgage document registered on title (refer to "switch").

Assumption Agreement [back to top]
A document that obligates someone other than the mortgagor to complete the mortgage obligations.

Assumption of a Mortgage [back to top]
The action taken by a purchaser who is responsible for a mortgage debt through a legal agreement; the original covenantor(s) responsibility pursuant to the mortgage obligation remains intact in such arrangement unless it has released by the mortgagee. See Release of Contract.

Authority [back to top]
The legal right given by a principal to an agent to act on the principal's behalf while performing specific acts, e.g. negotiations.

Balance Due On Completion [back to top]
The amount of money the purchaser has to pay to the vendor to complete the purchase after all adjustments have been made.

Balloon Payment [back to top]
The final mortgage payment at the end of the term that pays the outstanding loan in full.

Blended Payment [back to top]
Payments that consist of equal amounts of principal and interest paid at regular intervals during the term of the mortgage.

Blend and Extend [back to top]
A closed mortgage that can be "opened" for the purpose of extending the term; many lenders will blend the penalty for breaking the mortgage (usually an interest rate differential, or IRD) with the rate for the new extended term.

The main idea of the "blend and extend" is to enable the mortgagee to obtain a lower rate and protect against future mortgage rate increases.

Breach of Contract [back to top]
Failure to fulfill an obligation under a contract; breaching confers a right of action on the party whose rights under the contract have been breached.

Bridge Financing [back to top]
A loan required by a builder so as to obtain funds during the period between a permanent commitment and a construction loan.The lender will usually require a permanent mortgage commitment to the full amount of the construction loan plus a hold back provision that states that only the floor amount will be funded at the completion of construction.

Broker [back to top]
An individual with a "broker" designation may establish a sole proprietor practice or set up a corporation called a brokerage. For brokers, the corporation becomes the agent or broker and the individual is considered a registered real estate salesperson employed by the corporation. When you list your property or sign a buyer agency agreement, you enter into a contract with the brokerage, not the salesperson.

Building Codes [back to top]
Regulations established at the municipal, provincial or federal government level to provide structural requirements for building construction.

Buy-down [back to top]
Buy-down is a payment to the lender at the time of funding for purposes of reducing the interest rate during the term of the mortgage; often used as marketing features by new home builders, particularly on high ratio second mortgages.

Buyer's Agent [back to top]
A Realtor who is engaged contractually to act on behalf of the buyer or seller. In most cases, the Realtor acts on behalf of the sellers and is paid out of the proceeds of the sale. A Buyer's Agency Agreement allows a Realtor (with full disclosure to the sellers or their agent) to negotiate on behalf of the buyer with no legal conflict of interest. In this case, the seller still pays the Buyer's Agent fees but this is always specified in the agreement and acknowledged in the Offer to Purchase.

Cap Rate [back to top]
The highest rate that a borrower will pay within a defined time period. Examples of the cap rate are (1) the rate stated on the commitment letter or mortgage pre-qualification for the maximum rate that will be paid by the borrower during the term of a protected variable rate mortgage.

Capitalization Rate [back to top]
This is the rate of return an investor hopes to achieve through investment in a property.

Capitalized Value [back to top]
The value of a property based on the net income.

Caveat Emptor [back to top]
A Latin statement whose translation is "Let the buyer beware". In terms of purchasing a home or property, a buyer must fully examine all aspects of the transaction before agreeing to the purchase.

Certificate of Title [back to top]
The sequence of conveyances and encumbrances that affects a title to land, from the time of the original patent or as far back as records are available.

Charge [back to top]
The name applied to a mortgage document when title is registered under the Land Titles Act. A "charge on title" is any encumbrance or claim that affects title to property.

Chattel Mortgage [back to top]
An encumbrance that is against moveable possessions or personal property ("chattels") that may be removed without damaging to the property.

Closed Mortgage [back to top]
A mortgage whose terms state that it cannot be paid out, even with a penalty, unless the lender agrees.
Note that in some cases, a closed mortgage may be paid for in full but at a defined cost such as the interest rate differential (IRD) or sometimes with a punitive penalty such as full interest to maturity.

Closing [back to top]
The final exchange of consideration and legal documents completed at the endo of a house purchase or mortgage registration (or both) transaction.

CMHC [back to top]
The Canada Mortgage and Housing Corporation (CMHC) is a Canadian federal government crown corporation which administers the National Housing Act. One of the services provided by CMHC is the insuring of high ratio mortgage loans for lenders.

Collateral Mortgage [back to top]
A mortgage where a promissory note is used to securee the loan.

Collateral Security [back to top]
A form of security that one pledges as a way to reduce the risk of a mortgagee.

Commitment Letter [back to top]
A written letter from the lender stating that they will lend mortgage funds to a specified borrower (or borrowers) as long as certain conditions are met within a specified period of time period before the closing date. A key component of the commitment is the "rate hold" - this is where a lender may put a "cap" on the mortgage rate for a defined period of time (e.g. 60 days or 90 days), particularly in a period of volatile interest rates. For new homes, commitments on financing may have longer closing dates and can be negotiated between the lender and the builder and be held for as long as 6 months or even a year.

Completion Date [back to top]
The date on which your purchase will complete and money will change hands between you and the sellers.

Completion Loan [back to top]
A mortgage loan granted following the satisfactory completion of construction or repairs.

Compliance Letter [back to top]
A compliance letter may be required in some municipalities before a property transfer can take place. This letter acknowledges that a property either is clear of outstanding work-orders such as those that specify clean-up or repair requirements that an owner must complete before a transfer of ownership.

Compound Interest [back to top]
Interest on both the principal and interest that has accrued.

Condition Precedent [back to top]
An event or action necessary before an agreement becomes binding; also known as a "subject clause".

Condition Subsequent [back to top]
A condition referring to a future event upon which the contract is no longer binding on the parties.

Condominium [back to top]
The ownership of separate space within in a multiple dwelling or other multiple-ownership of common elements that are used jointly among other owners.

Connection Charges [back to top]
Charges that utility companies charge a fee on closing to connect new buyers to their services.

Consideration [back to top]
An item of value given to make a promise of repayment enforceable.

Construction Advance [back to top]
A sum of money advanced to the borrower in the form of a construction loan.

Construction Lien [back to top]
A claim against property that is pursuant to labour, services, or materials supplied.

Construction Loan [back to top]
A mortgage that is advanced in pre-determined stages, according to the amount of work completed, for a construction or building project.

Construction Loan Agreement [back to top]
An agreement set between a builder and lender that establishes the terms of an agreement (the loan amount, rate, method of drawing funds, conditions for advancing).

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

Conveyance [back to top]
A written agreement used for the transfer of mortgage, charges, or leases etc.

Conventional Mortgage [back to top]
A mortgage usually amounting to 75% Loan to Value ratio (or less) of the property value.

Convertible Mortgage [back to top]
The type of mortgage whereby one converts their mortgage to a new one of longer term while it is still in effect.

Covenant [back to top]
An agreement contained within a mortgage document that creates an obligation; the agreement may be positive, i.e. it stipulates the performance of certain acts, or it may be negative or restrictive, i.e. it forbidds the commission of certain acts.

Credit Report [back to top]
A report, available from at a credit bureau, that specifies an individual's payment history. Anyone who wishes to obtain a credit report can order a copy of their report by contacting their local credit bureau.

Damages [back to top]
Compensation or indemnity for loss owing to breach of contract.

Date of Completion [back to top]
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 [back to top]
The amount of principal and interest payments made under a mortgage.

Default [back to top]
Failure to fulfill an obligation; failure to make monthly mortgage payments as agreed, or to meet certain other terms of a mortgage agreement.

Deferred Income [back to top]
An accounting method of dealing with income that is received but not included in a statement of earnings as normal earnings.

Deficiency [back to top]
An insufficient payment, often relating to an amount recovered under a power of sale or foreclosure action.

Demand Note [back to top]
Payment is made on demand, usually within a few days notice to the borrower.

Deposit [back to top]
Payment of money or other valuable consideration as pledge for fulfillment of contract.

Depreciated Reproduction Cost [back to top]
Appraisal method by which the cost of replacing a structure, minus depreciation, gives the depreciation reproduction costs.

Depreciation [back to top]
A loss in value due to any cause.

Discharge of Mortgage [back to top]
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 [back to top]
A statement contained in a consumer credit transaction in order to disclose complete credit terms and interest rates.

Discount [back to top]
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 [back to top]
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 [back to top]
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 [back to top]
The estate which derives benefit from an easement over a subservient estate, as in a Right-of-Way.

Double-Up [back to top]
This feature (not offered by all lenders) allows you to double up your mortgage payments anytime without penalty. This feature is often associated with the ability to "skip" an equivalent number of payments. This can be used either to accelerate the pay-off of a mortgage (as it is an enhanced prepayment privilege) or to manage a volatile cash flow. For example, commission-based individuals such as Realtors could "double-up" with each commission cheque, and "skip" during low cash flow periods.

Dower Interest [back to top]
A wife's interest in the lands of her husband accruing to her by virtue of the marriage.

Down Payment [back to top]
The amount of cash paid towards the purchase transaction by the buyer of a home. This is also known as the purchaser's initial "equity" in the property, but is used by a lender to judge the personal commitment to the property. For example, a lender considers that, if a buyer saved the down payment, or received it as a gift from a loved one, they will be far more committed to maintaining the property value and making the mortgage payments than if they acquired it for "no money down".

Downside Leverage [back to top]
Occurs where the debt service on a mortgage exceeds the yield on an investors' property, thereby reducing cash flow.

Drawee [back to top]
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 [back to top]
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.

Easement [back to top]
The right acquired for access over another person's land for a specific purpose, e.g that to build a driveway, fence, wall, or public utilities.

Economic Depreciation [back to top]
Loss in value of property due to influences related to the property or those not controlled by the owner.

Effective Gross Income [back to top]
The estimated gross income minus allowances for rent and vacancies losses.

Effective Interest Rate [back to top]
The actual interest rate on investment where a debt or loan was bought at discount or at a premium.

Encroachment [back to top]
Some type of fixture, e.g. wall or fence, which illegally intrudes onto or invades on public or private property diminishing the size and value of the invaded property.

Encumbrance [back to top]
The outstanding claim or lien recorded against property, or any legal right for use of the property by another person who is not the owner.

End Loan [back to top]
The mortgage loan to the final customer such as a purchaser of a condominium unit.

Equitable Mortgage [back to top]
The transfer of equity in property as security for a debt; any mortgage registered after the first mortgage can be an equitable mortgage business.

Equity [back to top]
The difference between the value for which one can sell their property and what is owed against it.

Equity of Redemption [back to top]
The right whereby a mortgagor may reclaim clear title to the real property upon full repayment of the debt.

Escheat [back to top]
The reversion of property to the state in event the owner dies and has left no will and having no legally qualified heir(s) to whom the property may pass by lawful decree.

Estate [back to top]
The degree, extent, nature or quantity of interest which a person has in real property.

Estoppel Certificate [back to top]
A written statement or certificate which states certain facts upon which the receiver of the statement or a third party may rely. For example, a lender's estoppel statement as to a purchaser or property: this states that a lender cannot later deny the truth of these statements because a third party has relied and acted upon them.

Exact Day Interest [back to top]
Interest calculated on the basis of 365 days per year or by 366 days when it is a leap year.

Exculpatory Clause [back to top]
A clause which removes one party from personal liability in the event of a default.

Expropriation [back to top]
The act of forcefully taking private property for public use.

Extension Agreement [back to top]
The lengthening of a term on a contract to (1) extend the maturity date, (2) permit more time for the performance of an obligation or condition, or (3) extend the coverage of a lien to include more property.

Feasibility Analysis [back to top]
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 [back to top]
The highest estate or absolute right in real property.

Financing Statement [back to top]
A statement filed by a creditor in a public records office identifying the parties, giving their addresses, and describing the collateral.

First Mortgage [back to top]
Gives the lender a primary lien/charge against your house and property which has precedence over all other mortgages. Priority is determined by the date and time registered, so a first mortgage was literally and legally registered "first". A new first mortgage can therefore only be registered as a "first" mortgage upon the discharge of an existing one if the holder of a second mortgage "postpones" (i.e., "puts back in time") to a time immediately following the registration of the new first mortgage.

First Mortgage Bond [back to top]
Bonds issued by a corporation secured upon the property and earnings of the issuing corporation.

Five-Percent Down Program [back to top]
This allows buyers to obtain up to 95% financing on properties up to a certain value. The loan must be insured against default by CMHC (Canada Mortgage and Housing Corporation) or GE Capital Mortgage Insurance Corporation. This maximum home value will vary according to location (local Realtors should know the applicable limit) and eligibility can vary with personal circumstances.

Fixed Rate Mortgage [back to top]
This is the usual form of mortgage where interest rate remains the same during the entire life of the loan.

Fixtures [back to top]
Permanent improvements to property that may not be removed at the expiration of the term of lease or tenure.

Floating Rate of Interest [back to top]
Rate of interest which fluctuates according to prime lending rates, eg. 2% above prime rate usually chargeable on short term loans such as construction loans.

Floor to Ceiling Loan [back to top]
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 [back to top]
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 [back to top]
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 [back to top]
A mortgage loan wherein the stipulated repayments repay the loan in full by its maturity date.

Further Charge [back to top]
A second or subsequent loan of money to a mortgagor by a mortgagee, either on the same or on an additional security.

GE Capitol [back to top]
The General Electric Capitol Corporation - Canada's only private default mortgage insurer - insures high ratio mortgages for lenders.

Graduated Amortization Mortgage [back to top]
A method of repayment of a mortgage where payments in the initial period are low and are gradually later increased to a higher rate.

Grant [back to top]
A term used in deeds of conveyance to indicate a transfer of an interest or estate in land.

Grantee [back to top]
The party to whom an interest in real property is conveyed (the "buyer").

Grantor [back to top]
The person who conveys an interest in real estate by deed (the "seller").

Gross Debt Service Ratio (GDSR) [back to top]
The percentage arrived at by dividing your monthly shelter costs (principal, interest, property taxes, heating and half of condominium fees if applicable) by your gross monthly income and multiplying by 100. This calculation is used by all lenders as a yardstick by which they can measure the ability of a borrower (or borrowers) to make mortgage payments. Most lenders set a threshold of 32% for this ratio, while other lenders may allow higher limits; 32% is also the maximum qualifying GDS for most default insurance applications.

Gross Income [back to top]
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 [back to top]
An appraisal method where the fair market value of property is calculated by multiplying the gross rents by a factor which varies according to the type and location of the property.

Guaranteed Income Mortgage [back to top]
A guarantee included in the purchase money (by a seller-mortgagee) that there will be a minimum cash-flow or net operating income to the purchaser mortgagee (this type mortgage is limited in duration and may be combined with a management contract where the seller agrees to manage and operate the property).

Guarantor [back to top]
A guarantor is a third party who has no interest in a property but agrees to assume responsibility for a debt in the event of default by the mortgagor.

Hedge [back to top]
A complex money market instrument whose purpose of is to insure a mortgage lender (or borrower, through a protected or split-term mortgage) against interest rate movements. In the case of lenders, the price of this insurance will vary depending upon many different factors, but will generally be lower when interest rates and the economy are less volatile. Conversely, the buyer can hedge at no cost, or at a reasonable rate premium, by using specifically designed products.

High-Ratio Mortgage [back to top]
A mortgage where the Loan To Value ratio is greater than 75% of the value of the property; this type of mortgage normally requires the mortgagee tp purchase insurance to ensure the lender is protected against default.

Hold Back [back to top]
An amount of money retained by a construction lender or owner until satisfactory completion of the work performed by a contractor.

Home Inspection Report [back to top]
A report commissioned by a property owner or purchaser, usually to verify the condition of a property prior to the "firming up" of a Real Estate transaction. The scope and detail may vary, but most reports indicate the specific problem and the cost to repair. Unfortunately, no licensing is required, and this service is not specifically regulated other than by general consumer protection legislation. The best safeguard against inadequate work is to ask for the resume of the Inspector, and if possible check references from previous customers.

Immediate Participation Loan [back to top]
A loan where all partners contribute their share immediately.

Income Property Loan [back to top]
A loan that is secured on property which already has a source of income (e.g. rent); the loan is used to cover the debt service payments on the loan.

Income/Expense Ratio [back to top]
The ratio of operational expenses to gross income, expressed as a percentage.

Indenture [back to top]
A document of deed expressing certain issues, agreements or issues between the parties.

Injunction [back to top]
A judicial process or order requiring a person to whom it is directed to do or refrain from performing a particular act.

Instrument [back to top]
A written legal document.

Insurable Value [back to top]
Insurable Value is used 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 [back to top]
A single registered document that encumbers multiple properties.

Interest Adjustment Date [back to top]
A date from which interest on a mortgage advanced is calculated for regular payments. The IA date is usually one payment period before regular mortgage payments begin, as interest payable is due from the date a mortgage is advanced.

Interest Escalation [back to top]
Rate of interest on a loan is raised periodically during the term of the loan.

Interest Only Loan [back to top]
Where the borrower pays back only the interest on the loan and there is no amortization until the end of the term. An "interest-only loan" may be used when a purchaser wishes to resell property after a short period or if they wish to accumulate enough income from the property before amortization.

Interest Rate [back to top]
The profit of a loan calculated on a percentage basis.

Interest Rate Differential [back to top]
A penalty for early prepayment of all or part of a mortgage outside of its normal prepayment terms. Normally this is calculated as the difference between the existing rate and the rate for the term remaining, multiplied by the principal outstanding and the balance of the term.

Example:

To calculate the IRD, given

1. $175,000 mortgage at 8.75% with 24 months remaining.

2. Current 2 year rate is 6.25%.

3. Differential is 2.5% per annum.

4. IRD is $175,000 * 2 years * 2.5% p.a. = $8750.

Interim Financing [back to top]
Interim loans are a short-term means of bridging the gap between the construction loan and the permanent loan (hence they are known as "bridge" loans) .

Intestate [back to top]
A person who dies without a will, or leaves one which is defective, in which case the estate descends (by operation of law) to the next of kin.

Irrevocable [back to top]
Incapable of being recalled or revoked, unchangeable or unalterable.

Joint and Several Note [back to top]
A promissory note in which there are two or more promisors who are jointly liable.

Joint Tenancy [back to top]
Ownership of land by two or more persons where, on the death of one, the survivor or survivors take the whole estate.

Land Acquisition Loan [back to top]
A loan advanced to acquire land as opposed to one acquired for land or buildings improvements.

Land Contract [back to top]
A contract drawn between a seller and buyer for the sale of property.

Land Development Loan [back to top]
A loan advanced for the purpose of residential land development.

Land Transfer Tax [back to top]
A tax payable to the crown (usually the provincial government) by the purchaser upon the transfer of title from a seller.

Leasehold [back to top]
A type of interest in a property that is granted for a specified period of time as stated in the contract.

Leasehold Appraisal [back to top]
A method of estimating the value of leasehold property.

Leasehold Mortgage [back to top]
A mortgage given by a lessee on the security of the leasehold interest in the land.

Legal Description [back to top]
A written description by which property can be locatedfor purposes pf registration in a land registry system.

Legal Mortgage [back to top]
The transfer of a legal estate or interest in property for the purpose of securing the repayment of a debt.

Lending Value [back to top]
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 [back to top]
The tenant under a lease.

Lessee Interest [back to top]
The market value of property less the value of the leassor's interest.

Lessor [back to top]
The person who grants the use of the property under lease to a tenant.

Letter of Commitment [back to top]
A letter written by a lender that states the amount of the loan, specified interest rate, term of loan, and other specific conditions.

Letter of Credit [back to top]
The letter issued by a bank or lending institution that promises payment to a third party in accordance with the terms of the agreement. For example, letters of credit may be used in situations where a deposit is required or as security.

Leverage [back to top]
In real estate terms, upside leverage occurs when the yield or net return on property exceeds the debt service for a loan. Conversly, downside leverage occurs when the debt service is greater than the net return on investment.

Lien [back to top]
A lien is a claim made against a property for the payment of a debt or obligation related to the property or its owners.

Lien Hold Back [back to top]
A percentage of the contract price, or estimated cost of work to be done, that is held back from a mortgage advance.

Line of Credit [back to top]
A maximum credit limit allowed by a bank to a borrower, provided the borrower maintains an acceptable balance on account or has a good credit rating (the line of credit may vary according to the changing circumstances of the borrower or the bank).

Loan Coverage [back to top]
The ratio of net operating income to debt service; in general, a loan coverage of 1.3 to considered to be adequate for a loan to value ratio of 75%.

Loan Fee [back to top]
A charge for making a loan in addition to the interest charged to the borrower.

Loan Loss Reserve [back to top]
A reserve shown on a balance sheet as provision for any future losses in assets.

Loan Origination [back to top]
Analysis of loan applications from prospective purchasers to determine if they meet with requirements upon which the lender may issue a commitment letter.

Loan Portfolio Turnover [back to top]
The average length of time required for the turnover of mortgage loans until maturity.

Loan Processing [back to top]
The process a lender goes through upon application and approval of a loan; e.g. the procedures completed 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 [back to top]
The ratio of the principal amount of the mortgage loan to the lending value of the property.

Loan-to-Value Ratio [back to top]
The percentage of the value of a property for which a mortgage is required. The LTV ratio is used to determine whether or not default mortgage insurance is required, and, if so, the cost of mortgage insurance. For example, given a property value is $250,000, and the down payment available is $25,000, the required mortgage is $225,000; therefore, the LTV is $250,000 / $225,000 or 90%.

Lock-In Clause [back to top]
A clause that restricts prepayment of a loan during a specified period of the mortgage.

Margin of Safety [back to top]
The excess of equity at fair market value above the outstanding amount of the loan.

Matrimonial Home [back to top]
Any property in which a person has an interest and that is or has been occupied by the person and their spouse as the family residence; matrimonial homes include condominiums, co-operatives, and leasehold interests.

Maturity Date [back to top]
The last day of the term of the mortgage agreement; a mortgage loan must then be paid in full or the agreement renewed by this date.

Mortgage [back to top]
The legal pledge of real estate as security for a loan.

Mortgage Bond [back to top]
A bond that is issued by corporations and secured by a mortgage on their property.

Mortgage Broker [back to top]
A registered agent who negotiates with lenders on behalf of a borrower to obtain the best overall mortgage for that borrower's circumstances. Mortgage Brokers are particularly useful in financing "non standard" situations which cannot be funded by a major national lender. This is possible because a Mortgage Broker has access to lenders who do not advertise nationally or operate retail locations.

Mortgage Commitment [back to top]
A formal indication by a lending institution that it will grant a mortgage loan on property, for a specified amount, based on specified terms.

Mortgage Debenture [back to top]
A mortgage debenture is the same as a mortgage bond.

Mortgagee [back to top]
The "lender" of a mortgage loan.

Mortgagee In Possession [back to top]
A mortgagee in possession is that where one enters into actual occupation of, or by obtaining the receipt of the rents of, the mortgaged premises.

Mortgage Insurance [back to top]
If the down payment is less than 25% of the purchase price of the property, the lender is will require either private mortgage insurance or public mortgage insurance through Canada Housing and Mortgage Corporation (CMHC) or GE Capital. The fee is calculated as a percentage of the mortgage; known as "default insurance".

Mortgage Insurance Premium [back to top]
An insurance premium which is added to the mortgage and paid by the borrower over the life of the mortgage. The mortgage insurance insures the lender against loss in case of default by the borrower.

Mortgage Life Insurance [back to top]
A form of insurance recommended for the borrower; in the event of the death of the owner(s), the insurance pays the balance owing on the mortgage. The intent of mortgage life insurance is to protect survivors from losing their home.

Mortgage Loan [back to top]
An agreement by which a sum of money is borrowed and a promise to repay is given by a mortgagor, and as a further security, the mortgagor gives the mortgagee a conveyance on the property they own (a promissory note executed in favor of the lender giving them an encumbrance or lien on the mortgagor's property).

Mortgage Note [back to top]
A promissory note executed in favor of the lender giving him an encumbrance or lien on the borrower's property. The mortgagor is usually liable on this type of note.

Mortgage Portfolio [back to top]
Several mortgages held by a mortgagee, lender or broker.

Mortgage Postponement [back to top]
The process where a mortgagee may permit the mortgagor to renew or replace an existing mortgage that falls due prior to the maturity date.

Mortgage Underwriter [back to top]
A mortgage lender or broker who approves or turns down loan applications based upon the quality of the real property, credit-worthiness and ability to pay according to the guidelines of the lender with regard to ratio of mortgage loan to value of property.

Mortgaging Out [back to top]
A term used when a mortgage exceeds the current value of the property on which it is secured.

Mortgagor [back to top]
The mortgagor is the "borrower".

Multiple Listing Service (MLS) [back to top]
A service of a local Real Estate Board which publishes and exchanges details of properties registered with them. The majority of properties sold in Canada are sold through the local MLS.

Municipal Levies [back to top]

A levy charged by a municipality to recover the cost of special services, if these services cannot, for some reason, be funded out of general revenues, or apply primarily to homebuyers (e.g. water meter installation, road and sewer improvements)

Negative Cash-Flow [back to top]
When operating costs exceed gross rental income or debts.

Net Operating Income [back to top]
The balance remaining after deducting the operating expenses from gross receipts and gross rental, but not including the deduction of debt service on mortgages. The "free and clear return" on property is calculated by the ratio of NOI to total investment including mortgages and equity. ("free and clear return" gives a direct means of comparing the return on different properties)

Net Rate of Interest [back to top]
The interest rate received by a mortgagee net of the servicing fee deducted by a loan correspondent, etc.

Net Worth [back to top]
The difference between what you own (assets) and what you owe (liabilities) is called your net worth.

Nominal Interest Rate [back to top]
The interest rate stated on the face on a loan document. Note that if the loan amount is discounted or sold at premium, the effective rate of interest will either be higher or lower.

Non-Recourse Loan [back to top]
A clause in a loan that waives personal liability of the borrower on the loan.

Oblatory Advance [back to top]
An advance made according to terms of a pre-existing construction loan agreement or mortgage.

Offer To Purchase [back to top]
A written proposal that is either "firm", i.e. it has no conditions, or "conditional", i.e. certain conditions that have to ve fulfilled, to purchase real estate that becomes binding upon acceptance of the vendor.

Open End Mortgage [back to top]
A mortgage under which the lender has the option of advancing more funds where the value of the property is anticipated to increase.

Open Mortgage [back to top]
This enables one to pay back the borrowed funds without notice or penalty. There are two types of open mortgages:

1. Fixed rate mortgages: mortgages where the term is usually short, e.g. 6 months to a year, and the interest rate will be higher than on a closed mortgage.

2. Variable Rate Mortgages: mortgages that are open.

Open Or Closed [back to top]
The restriction or denial of repayment rights until the maturity of the mortgage is a closed mortgage. For example, if the mortgage is specified as open, then the mortgagor can pay extra payments of principal sums at any time or at specified times with or without repayment penalty.

Operating Expenses [back to top]
All expenses, occurring periodically, that are necessary to produce net income before depreciation; under some conditions these expenses may be placed in two categories: operating expenses and fixed charges.

Option [back to top]
A right give by the owner of property to another, for a consideration, to buy a certain property within a limited time at an agreed price.

Order Absolute [back to top]
Judgement taken against a mortgagor that extinguishes the equity of redemption.

Owner [back to top]
The lawful possessor of the title to real property.

Package Loan [back to top]
The combination of two types of loan. For example, a 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 [back to top]
A discharge of a definite portion of the mortgage lands given after the mortgagor has prepaid a specific portion of the mortgage debt.

Participation Loan [back to top]
An agreement whereby two or more lenders share in advancing a portion of a loan made by the originating or lead bank; the terms in this type of agreement establish a method of apportionment and interest rates.

Partnership [back to top]
An arrangement whereby individuals join together where, in the beginning a general partner who has the experience and the limited partners have the money, in the end the general partner has the money and the limited partners gain the experience.

Percent Paid Off [back to top]
The percent of principal that is paid off at any given time under an amortization schedule.

Percentage Rent Plus Minimum [back to top]
A percentage rental which must be paid in addition to the minimum; this is a minimum rent that is not credited against percentage rent payable.

Percentage Rental Against Minimum [back to top]
A rental paid on a percentage lease where rent paid by a tenant varies according to volume of business. For example, a percentage of gross receipts, sales or revenue are paid to the extent where they exceeds a minimum rental.

Permanent Financing