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Question 1

Abandonment

Answer 1

When you voluntarily relinquish your home without transferring ownership, you have legally abandoned your property. In recent years, abandonment has been used as a last resort against foreclosure. However, abandoning your property is not as simple as giving two weeks’ notice. It may send your FICO score plummeting by 100 points or more, and under certain circumstances, forgiven mortgage debt may have to be reported as taxable income.

Question 2

Actual Age

Answer 2

The actual age of a building is how much time that has elapsed since the building was first built.

Question 3

Agreement of Purchase and Sale

Answer 3

A purchase and sale agreement, also called an agreement of sale, is a legal document in which you, the buyer, offer a specific price for a home for sale. A purchase and sale agreement often includes pertinent information such as the closing date of the transaction, closing fees, the real estate agent’s commission, required property inspections prior to sale, and exactly what property is being sold under the contract. A seller may propose a counteroffer price, which may also specify his or her preferred conditions of sale, and you have a limited amount of time to accept or reject it. Make sure you know what you’re getting into; you cannot back out of a purchase and sale agreement once you have submitted it.

Question 4

Amortization

Answer 4

Amortization is the time span required to fully repay your mortgage based on a set number of fixed payments, that is, it is an estimation of how long you will be paying off your mortgage. Amortization periods in Canada range from 1 to 30 years; the maximum legal amortization period for a high-ratio mortgage is 25 years. Both long and short amortization periods have their respective benefits. The longer the amortization period, the smaller your mortgage payments, however you will pay more in the long run due to compound interest. Negative amortization occurs when your periodic payments are not large enough to pay off accrued interest. The loan, therefore, keeps growing even though your wallet keeps shrinking.

Question 5

Amortization Term

Answer 5

The term of the mortgage amortization.

Question 6

Annual Mortgagor Statement

Answer 6

The annual mortgagor statement is an annual report sent to you from your lender detailing the state of your mortgage loan, including the principal and interest paid during the year and the anticipated amount to be remunerated.

Question 7

Appraisal

Answer 7

An appraisal determines the market value of your home. The process is simple: An appraiser, a qualified and informed real estate professional, physically inspects your home inside and out. At the end of the inspection, an appraisal report is prepared and the value of the home is determined.

Question 8

Asset

Answer 8

An asset is piece of property that you own and has value.

Question 9

Assumption

Answer 9

Assumption is when you accept responsibility for the mortgage of a seller whose home you are purchasing. As a buyer, you may benefit from assuming a mortgage since the loan may come without high-ratio insurance premiums and with a low interest rate. On the other hand, sellers with portable (transferable) mortgages with low interest rates can attract prospective buyers.

Question 10

Balance

Answer 10

Balance is the unpaid amount of a loan remaining. Balance is also a common credit card term

Question 11

Balloon Mortgage

Answer 11

A balloon mortgage is a medium-term loan repaid prior to its amortization period with one “balloon” payment. For instance, a mortgage might be amortized for 25 years but due in 10 years. At the conclusion of one decade, everything that would have been paid in the remaining 15 years, minus the accrued interest, is due in one lump sum. This large payoff is a called a balloon payment and is the namesake of the mortgage. Balloon mortgages usually have fixed interest rates due to their short terms, but floating rates do exist. If you can cover the large payment at maturity and the reduced home equity compared to a conventional mortgage, balloon mortgages may more than compensate with affordable monthly payments and short-term financial obligation.

Question 12

Bankruptcy

Answer 12

Bankruptcy occurs when you declare yourself insolvent and unable to afford any future payments on your loans. A formal declaration of bankruptcy requires that you owe a minimum debt of $1,000. In Canada, the Office of the Superintendent of Bankruptcy oversees bankruptcy proceedings to ensure fairness between borrowers and lenders during liquidation proceedings. A consumer proposal is an alternative to bankruptcy in which you and your creditor negotiate a payoff schedule, usually not lasting longer than five years, where you repay as much as of your loan as possible. Even though creditors usually receive less than the amount owed, most prefer consumer proposals to forced bankruptcy.

Question 13

Blanket Mortgage

Answer 13

A blanket mortgage is a loan that covers two separate pieces of real estate.

Question 14

Blended Payments

Answer 14

A blended payment is a periodic payment comprised of principal and interest. Mortgages are paid off on a regular schedule, e.g., bi-monthly or monthly, through blended payments. As time goes by, the principal part decreases and the interest part increases, but the payments remain more or less even within each term.

Question 15

Borrower

Answer 15

The person who purchases a mortgage lien.

Question 16

Bridge/Interim/Short-term Financing

Answer 16

A bridge loan, nicknamed a swing loan or gap financing, is money borrowed to finance the purchase of one property while selling another. Double-digit interest rates are not uncommon which makes bridge loans more popular among large corporations than homebuyers, especially because most have no prepayment penalty. A simple way to avoid the situation would be to move the closing date of the property being purchased after the closing date of the asset being sold. Therefore, there is no overlap and no need for a bridge loan.

Question 17

Buydown

Answer 17

A buydown is a refinancing, reshuffling technique. It distributes the responsibility of mortgage payments among two sources, the buyer and the builder or seller. Rather than accepting the full brunt of the mortgage payments, you ask the builder or seller of your mortgaged property to pay part of the periodic payments for 1-5 years, which means you enjoy a small interest rate and convenient, manageable payments. In return, the builder bumps up the purchase price of the property to compensate for the initial subsidies.

Question 18

CMHC

Answer 18

The Canada Mortgage and Housing Corporation (CMHC) is Canada’s national housing agency. It was established after World War II to resurrect the housing market following the return of Canadian veterans, and today, the CMHC plays an active role in Canadian urban development. One of its most common responsibilities is to guard mortgage lenders against buyers whom default on loans with a down payment of 20 per cent or less.

Question 19

Cash-Out Refinance

Answer 19

A cash-out refinance is a technique to withdraw funds from your home’s virtual piggy bank. You take out a new mortgage loan that is larger than the one you currently owe and simply pocket the difference. Cash-out refinances are often used by homeowners who wish to tap into their home equity without taking out a home equity loan, which usually comes with a higher interest rate.

Question 20

Caveat Emptor

Answer 20

Caveat emptor is Latin for, “Let the buyer beware.” It is a formal way for a seller to tell a buyer, “as is, where is, take it or leave it.”

Question 21

Conditional Offer

Answer 21

A conditional offer is a proposal to purchase which is subject to conditions. Such conditions often relate to the sale of an existing home, or securing financing. Another condition could be an adjusted sale price or a particular closing date.

Question 22

Closed Mortgage

Answer 22

A mortgage which cannot be fully prepaid, renegotiated, or refinanced before the mortgage term reaches full maturity without some sort of additional charges (e.g. three months worth of interest). Interest rates for a closed mortgage are typically lower than the rates offered for an open mortgage. This might not be as stringent as it sounds. Many closed mortgages will allow you to increase your monthly payments or make lump sum payments once a year up to a certain percentage of the mortgage without penalties and/or other charges.

Question 23

Closing Costs

Answer 23

Closing costs are costs associated with the purchase of a home which are not included in the purchase price. Some typical closing costs include land transfer taxes and legal fees.

Question 24

Closing Date

Answer 24

The date on which the sale of a property becomes final. The new homeowner usually takes possession on this date.

Question 25

Collateral

Answer 25

Collateral is a borrower’s pledge of property to the lender, to secure repayment of a loan in the event of a default.

Question 26

Combined Loan-to-Value

Answer 26

A combined loan-to-value (CLTV) is a ratio often used when underwriting a second or third mortgage. It adds up all of the outstanding loans on a home and divides that amount by the estimated value of the asset. It can often indicate the likelihood of foreclosure, the amount of home equity and the general creditworthiness of the homeowner.

Question 27

Construction Mortgage

Answer 27

Also known as a construction loan, a construction mortgage is obtained when you take out a mortgage loan to build a home. There are two types of construction mortgages: self-contained and construction-to-permanent. In both types of loans, you only pay interest on your loan during construction. Once the building is constructed, the entire principal is due if you have a self-contained loan. With a construction-to-permanent loan, the construction mortgage morphs into a conventional mortgage, and business proceeds as usual.

Question 28

Conventional Mortgage

Answer 28

A conventional mortgage is what you’ll get if you have a down payment that is 20 or more per cent of the property’s purchase price. With a conventional mortgage, you will not be required to get mortgage loan insurance.

Question 29

Credit Score

Answer 29

Your credit score is a numerical rating of your credit worthiness, that is, how reliable you are to repay a loan. In Canada, FICO credit scores range from 300 to 900 with a median range of 720-760. A robust credit score helps you obtain loans without a co-signer and snags lower interest rates. There are many ways to boost your credit score, including repaying outstanding debt, distributing credit among credit lines and not using available credit.