Chapter 7 Key Terms & Definitions Flashcards
Approved Lender
A lender approved by CMHC
Beneficiary
The person who receives the payment of the amount of insurance after the death of the insured. Creditor insurance names the lender as the beneficiary.
Business for self
Another term for an individual who is self-employed
Capitalization
The act of adding mortgage arrears or other costs associated with a mortgage to the principal amount. For example, capitalizing a lender’s fee means that this fee would be added to the mortgage principal and amortized.
Chattel loan/mortgage
A purchaser borrows funds for the purpose of movable personal property (the chattel) from the lender. The lender then secures the loan with a mortgage against the chattel.
Claim
A legal action to obtain money, property or the enforcement of a right protected by law against another party. An insurance claim is a claim made under the terms of the insurance contract.
CMHC
Canada Mortgage and Housing Corporation (CMHC), created through the National Housing Act, 1954 (NHA, 1954) established mortgage default insurance in Canada in 1954 and is the largest provider of default insurance in Canada.
Common areas
Common areas are the areas of a condominium building that are common to all unit owners, but not owned by them. For example, a swimming pool, gym, etc. Each unit owner pays a monthly fee to maintain these areas.
Condominium
The whole collection of individual home units along with the land upon which they sit. Individual home ownership is composed only of the air-space within the boundaries of the home, as defined by a document known as the Declaration, filed on record with the local governing authority.
Condominium corporation
A corporation without share capital, created under the Condominium Act for the purposes of administering the operation, maintenance and repair of the common elements and assets of the condominium. The Corporation is guided by the Board of Directors consisting of the building’s unit owners.
Condominium status certificate
A document containing information regarding the operational, legal, and financial status of the condominium corporation. This document can contain the declaration, by-laws, rules and regulations, insurance information, reserve fund balance, other financial disclosures, legal description of the unit and management contract (if applicable). It may also include information about any legal filings or judgments against the condominium. A buyer should always review the status certificate.
Deductible
In relation to an insurance contract, the insured’s share of the claim. The insured pays the deductible and the insurance company pays the remainder of the claim.
Default management
Programs in place by mortgage default insurers that allow the lender to assist the borrower in resolving mortgage arrears
Depreciation
Depreciation refers to the fact that certain assets, normally physical assets, can lose value over time. The amount of depreciation is calculated based on an item’s original purchase price or economic value, its anticipated life expectancy and its residual value at a future point in time.
Disbarment
A revocation of a lawyer’s ability to practice law
Disbursements
Amounts payable. In mortgage financing, disbursements typically relate to amounts paid from the mortgage proceeds.
Down payment
An amount of a purchaser’s money provided to the vendor from his or her own resources (not included in a mortgage loan). Under certain programs this amount may be borrowed.
E&O (Errors & omissions insurance)
Insurance that provides coverage for errors and omissions made by a brokerage, broker, agent or Administrator. This insurance must contain a provision for fraud.
Easement
A right for the benefit of the dominant tenement over that of the servient tenement that is normally registered on title. Easements have several legal requirements and will “run with the land,” or be passed from owner to owner.
Encroachments
When a piece of real property hangs from one property over the property line of another’s. The structure that encroaches might be a tree, garage, fence, part of a building, or other fixture.
Environmental hazards
Any situation or state of events which poses a threat to the surrounding environment. This may be caused by chemicals leaking into the soil, ruptured gas tanks at a gas station, etc.
Execution
A “Writ of Execution” filed with the sheriff in the district in which the debtor lives and owns land. This allows a plaintiff who has successfully obtained a judgment against a debtor in court to enforce the judgment.
Extended amortization period
An amortization that exceeds the standard amortization of 25 years
Fire retrofit
The Municipal Act and Planning Act permit one apartment in most detached houses, semi-detached houses and some types of row houses as long as minimum health and safety requirements can be met. The requirements for fire safety in such units are regulated under one of two provincial regulations, either the Building Code or Section 9.8 of the Fire Code. The requirements for a legal second unit can be summed up with these four points: there must be a fire separation between each unit; there has to be a way for occupants to escape from each unit; each unit must have smoke alarms; the units must meet electrical safety standards
Grossing up taxable income
The process of adding deductions originally taken from an individual’s income back to that income
Group policy
An insurance policy that groups together certain policyholders based on general criteria
Home Buyers’ Plan (HBP)
A program that allows a first-time home buyer to withdraw up to $35,000 in a calendar year from his or her registered retirement savings plans (RRSPs) to buy or build a qualifying home. A first-time home buyer is considered to be an individual who has not owned real property within four years prior to purchasing the current property.
Home Insurance
Insurance to compensate the home owner against covered risks and perils
Insurance policy
A policy that, in return for the payment of a premium or premiums, provides insurance coverage to the insured
Liability
An obligation of an individual or other entity to compensate for past occurrences that have caused injury or loss to another
Lien
Security against a property, either real or personal, for a debt
Life Insurance
A policy of insurance that provides financial compensation to a beneficiary upon the death of the insured.
Malpractice insurance (Lawyer’s)
Insurance that provides coverage for acts of negligence or malpractice by a lawyer. This will compensate the injured party.
Master insurance policy (Condominiums)
Typically found with condominium buildings, this policy outlines the coverage for the entire building.
Mobile home / Manufactured home
A large trailer or transportable prefabricated structure that is situated in one place and used as a permanent living accommodation.
Mortgage Brokerages, Lenders and Administrators Act, 2006
The legislation that governs the mortgage brokerage industry in Ontario. This legislation is enforced by FSRA and replaces the previous Mortgage Brokers Act.
Mortgage Brokers Act
The legislation predating the Mortgage Brokerages, Lenders and Administrators Act, 2006. This legislation governed the mortgage brokerage industry in Ontario until July 1, 2008 and was enforced by FSRA.
Mortgage creditor / Mortgage creditor life insurance
Insurance that provides coverage to the insured so that, in the case of the insured’s death or other covered risk,, payment is made to the lender
Mortgage default insurance
An insurance policy which compensates the insured (the lender) for losses suffered by the default of the borrower
Mortgage fraud
The deliberate omission of information, use of misstatements or misrepresentations to obtain, purchase, or fund a mortgage loan
National Housing Act
The legislation that created mortgage default insurance in 1954
Non owner-occupied property
A property that is rented
Non-permanent resident
Non-permanent residents (NPRs) are persons who have been legally granted the right to live in Canada on a temporary basis under the authority of a temporary resident permit, along with members of their family living with them
Owner occupied property (O/O)
A property that is occupied by the owner
Portability
The ability to transfer something such as a mortgage or insurance to another property or transfer mortgage creditor insurance coverage to another lender
Premium
An amount paid in return for insurance coverage
Principal residence
The place in which an individual normally resides
Private insurer
A non-governmental insurance company
Property insurance
Insurance that protects the insured against losses to the property due to fire and other covered perils
Reamortization
The process of changing the amortization on a current mortgage
Refinance
The process of paying off a current mortgage and replacing it with another
Rental property
A property used solely for the purpose of renting to generate income for the owner
Replacement value
The cost to replace an item in today’s dollars
Restrictive covenant
A restriction of use placed on the title of the servient tenement for the benefit of the dominant tenement
RRIF
A Registered Retirement Income Fund (RRIF) is a fund purchased by an individual from a carrier. It is purchased using money from an RRSP, a PRPP, an RPP, an SPP, or from another RRIF. The carrier then makes payments to the owner of the RRIF. A lender can use RRIF income as part of a borrower’s income for qualification purposes.
RRSP
A Registered Retirement Savings Plan is a savings plan that is registered with Canada Revenue Agency and allows the individual to defer taxes, generally until retirement.
Second home
A second home is a vacation property such as a cottage or other property, not used a principal residence. It is possible to get a 95% LTV mortgage to purchase a second home, as long as it is owner occupied or for family members to live rent-free (other conditions do apply). The Home Buyers Plan is not eligible for this type of purchase.
Self-direct RRSP
A type of RRSP (Registered Retirement Savings Plan) whose owner determines the asset mix held in the trust.
Self-employed borrower
A mortgage borrower whose income is derived from self-employment activities
Septic system
A domestic wastewater treatment system (consisting of a septic tank and a soil absorption system) into which wastes are piped directly from the home. Bacteria decompose the waste, sludge settles to the bottom of the tank, and the treated effluent flows out into the ground through drainage pipes.
Solicitor’s Letter of Opinion
A report by the lender’s real estate lawyer outlining the condition of the title of the mortgaged property
Survey
A document that determines the boundaries of a property. More information can be found at the Association of Land Surveyors
Tenant
An individual renting a property
Term life insurance
A life insurance policy with a specified term or amount of time that the policy will be in place
Title
A term that refers to the ownership of a property. If something is registered “on title” it means that it is officially registered agains the ownership of the property through the Land Titles Office, where property ownership is recorded
Title defect
Any item that “clouds” the property’s title. A title defect can be a lien, a person or entity that may have had interest in the property and never surrendered it, or any number of other situations making the title less than perfect
Title insurance
An insurance policy that provides protection against errors in title such as survey errors, zoning infractions and property encroachments. It can also protect the homeowner against fraud.
Underwriting
The process that a product or service provider uses to assess the eligibility of a customer to receive its products such as mortgage financing, insurance or other credit to a consumer.
