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A consumer guide and workbook - page 50 / 79





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Failure to abide by the terms of a mortgage loan agreement. A failure to make mortgage payments (defaulting on the loan) may give cause to the mortgage holder to take legal action to possess (foreclose) the mortgaged property. A legal procedure in which the lender gets ownership of the property if the borrower defaults on the mortgage loan. Gross Debt Service Ratio (GDS) The percentage of the borrower’s gross monthly income that will be used for monthly payments of principal, interest, taxes, heating costs and half of any condominium maintenance fees. Deposit Money placed in trust by the purchaser when an Offer to Purchase is made. The sum is held by the real estate representative or lawyer until the sale is closed, and then paid to the vendor. High-ratio Mortgage A mortgage loan in excess of 75% of the lending value of the property. This type of mortgage must be insured—for example, by CMHC—against payment default. Discharge of Mortgage A document signed by the lender and given to the borrower when a mortgage loan has been repaid in full. Holdback An amount of money withheld by the lender during the progress of construction of a house to ensure that construction is satisfactory at every stage. A standard holdback amount is 10% of the total cost of the building project. Down Payment The portion of the house price the buyer must pay up front from personal resources, before securing a mortgage. It generally ranges from 5%-25% of the purchase price. Easement A right acquired for access to or over, or for use of, another person’s land for a specific purpose, such as a driveway or public utilities. The Deed Interest The cost of borrowing money. Interest is usually paid to the lender in instalments along with repayment of the principal loan amount. Encumbrance A registered claim for debt against a property, such as a mortgage.


The difference between the price for which a home could be sold and the total debts registered against it.

Equity usually increases as the outstanding principal of the mortgage is reduced through regular payments. Market values and improvements to the property also affect equity.

Interest Adjustment Date (IAD)

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. Interest due from the date your mortgage is advanced to the IAD is due on closing.

Lending Value

The purchase price or market value of a property, whichever is less.

Lien (Mechanic’s)

A claim against a property for money owing. A lien may be filed by a supplier or a subcontractor who has provided labour or materials but has not been paid. A lien must be properly filed by a claimant. It has a limited life, prescribed by statute that varies from province to province.

If the lienholder takes action within the prescribed time, the homeowner may be obliged to pay the amount claimed by the lien- holder.

Alternatively, the lienholder may force a sale of the property to pay off the debt.

Loan-to-value Ratio

The ratio of the loan to the lending value of a property expressed as a percentage. For example, the loan- to-value ratio of a loan for $90,000 on a home which costs $100,000 is 90%.

Maturity Date

The last day of the term of the mortgage agreement. On this day the mortgage loan must be either paid in full or the agreement renewed.


A mortgage is security for a loan on the property that you own. It is your personal guarantee to repay the loan as well as a pledge of the property as security for the loan.

Mortgage Loan Insurance

If you have a high-ratio mortgage (more than 75% of the purchase price), your lender will require mortgage loan insurance— available from CMHC or a private insurer. The insurance premium will cost between 0.5% and 3.75% of the amount of the mortgage (additional charges may apply).



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