Amortization:
The period of time, (most often 15, 20 or 25 years) required to reduce a debt to zero when
payments are made regularly.
Appraisal:
A process for estimating the market value of a particular property.
Appreciation:
The increase of a property’s value over time.
Approved Lender:
A lending institution authorized by the Government of Canada through CMHC to make loans
under the terms of the National Housing Act. Only Approved Lenders can negotiate mortgages
which require mortgage loan insurance.
Assessment:
The value of a property set by the local municipality, for the purpose of calculating
property taxes.
Assignment:
Many presale condos (usually those working with “speculators”) will allow the
original purchaser to, for a fee and only with the written consent of the developer (which
in many cases may be arbitrarily withheld - usually unless they have sold that particular
model out), sell the unit prior to title transfer (in essence selling something that they
do not legally own yet). Obviously they cannot be selling the real estate so what they are
selling is an “Assignment” under which all legal rights and obligations of the
original purchaser are in fact, “assigned” to the new or pursuant purchaser.
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.
Assumption Agreement:
A legal document signed by a homebuyer that requires the buyer to assume responsibility
for the obligations of a mortgage by the builder or the original owner.
Blended Mortgage:
A combination of two mortgages, one with a higher interest rate than the other, to create
a new mortgage with a interest rate somewhere between the two original rates.
Blended Payments:
A mortgage payment that includes principal and interest. It is paid regularly during the
term of the mortgage. The payment total remains the same, although the principal portion
increases over time and the interest portion decreases.
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.
Building Permit:
A certificate that must be obtained from the municipality by the property owner or
contractor before a building can be erected or repaired. It must be posted in a
conspicuous place until the job is completed and passed as satisfactory by the municipal
building inspector.
Buy-Down:
When a seller reduces the interest rate on the mortgage by paying the difference between
the reduce rate and market rate directly to the lender or to the purchaser, in one lump
sum or monthly installments.
Closing:
The real estate transaction’s completion, when all 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.
Closing Costs:
Costs, in addition to the purchase price of the condo, such as legal fees, land transfer
fees, and disbursements, that are payable on the closing date. Closing costs typically
range from 1.5% - 4% of the condo’s selling price.
Closing Date
The date on which the sale of a property becomes final and the new owners take possession.
CMHC
Canada Mortgage and Housing Corporation. A Crown Corporation that administers the National
Housing Act for the Federal Government and encourages, the improvement of housing and
living conditions for all Canadians. CMHC also creates and sells mortgage loan insurance
products.
Collateral Mortgage
A mortgage which secures a loan by way of a promissory note. The money which is borrowed
can be used to buy a property or for another purpose such as a renovation.
Conditional Offer/Conditions of Sale
An Offer to Purchase that is subject to specified conditions, for example, the arranging
of a mortgage or on your lawyer reviewing the Status Certificate and satisfying
himself/herself that the condo corporation is in good fiscal health. There is
conventionally a stipulated time limit within which the specified conditions must be met
and “waived”.
Conventional Mortgage:
A first mortgage issued for up to 75 per cent of the property’s appraised value or
purchase price, whichever is lower.
Commitment Letter / Mortgage Approval
Written notification from the mortgage lender to the borrower that approves the
advancement of a specified amount of mortgage funds under specified terms and conditions.
Counter Offer
One party’s written response to the other party’s offer during purchase
negotiations.
Covenant
A clause in a legal document which, in the case of a mortgage, gives the parties to
the mortgage a right or an obligation. For example, a covenant can impose the obligation
on a borrower to make mortgage payments in certain amounts on certain specified dates. A
mortgage document consists of covenants agreed to by the borrower and the lender.
Condominium:
The fee simple ownership of a specified amount of space (the “unit”) in a
multiple dwelling or other multi-occupancy building with tenancy-in-common ownership of
the portions used jointly with other owners (the “common elements”). Briefly
stated, a condominium enables a person to share in the ownership and operation of a
housing development while having negotiable title to his/her own unit. Although the
concept of condominium in new in Ontario the term originated in Roman law and in Latin
meant joint dominion or co-ownership.
A condominium is strictly a creature of statute, created under the Condominium Act of
Ontario, as a means of consumer protection. The Condominium Act came into force in 1967.
By 1990 Ontario had more than 2,000 condominium corporations and about 200,000 condominium
units. At common law, registration of ownership of a legal interest in a unit on the
sixteenth floor of a high rise building was not possible. The only interest capable of
registration was the ownership of land. Even under the Condominium Act it is still land
that is the subject of registration. However, the legislature has managed to turn space
into land with a few simple words: “For the purpose of this Act, the ownership of
land includes the ownership of space” (section 1(2)).
How is a Condominium Created ? A developer acquires a parcel of land and takes
his land and plans through numerous stages including enrollment under the Ontario New
Homes Warranty Program, negotiation of the agreements with the various governmental
authorities and utilities and finally he will receive the necessary approvals to start
building. During this time period the developer’s lawyers prepare the declaration,
description, disclosure statement, etc. The developer sets up a sales office and starts
“pre-selling” (selling prior to construction) the units. Once the building is
constructed the developer receives an “Occupancy Certificate” showing that the
Municipality is sufficiently satisfied to allow purchasers to move into the building.
During the Occupancy Period the Municipality inspects the delivered building surveying
all areas and compares the findings with the original draft plan or registered site plan
to insure that the developer has delivered what he/she said they would. After the Ministry
of Housing inspects and approves the project for release, the developer then registers the
appropriate documents and the development is “Registered” which forms a new
numbered corporation (“MTCC # #”).
Condo Corporation
A Condo corporation is the non-profit corporation that is formed once the condo
Registration is achieved. It functions as a conventional corporation with each unit owner
constitution the shareholders. Immediately upon gaining registration the condo corporation
calls its initial meeting where a Board of Directors is elected by the shareholders.
The Board of Directors meets monthly, and vote on all issues involved in running the
corporation. It also assesses the Condo Rules and may modify any that it deems
appropriate. Major changes require votes of the entire shareholder group.
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.
Declaration
Generally speaking, the declaration is the constitution of a condominium. The
declaration, according to the Condominium Act (sec 3), must contain certain information
including:
a. a statement of intention that the land and interests appurtenant to the land
described in the description be governed by this Act;
b. the consent, in the prescribed form, of every person having a registered mortgage
against the land or interests appurtenant to the land described in the description;
c. a statement, expressed in percentages, of the proportions of the common interests;
d. a statement, expressed in percentages allocating to the units, of the proportions
in which the owners are to contribute to the common expenses;
e. an address for service and a mailing address for the corporation; and
f. a specification of any parts of the common elements that are to be used by the
owners of one or more designated units and not by all owners.
Deed:
A legal document which is signed by both the Vendor and purchaser, transferring
ownership. This document is registered as evidence of ownership. The historic ritual of
“burning the mortgage” carries some dangers so be advised.
Default:
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.
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.
Description:
The description is a series of building plans and surveys representing a diagrammatic
description of the condominium structure. It must include the plan of survey, structural
plans of the building, boundaries of each unit, diagrams showing the shape and dimensions
of each unit (in relation to other units), a surveyor’s certificate, and a
description of any interests appurtenant to the land that are included with the property.
Discharge of Mortgage:
A document signed by the lender and given to the borrower when a mortgage loan has
been repaid in full (with this document you can burn the mortgage).
Disclosure Statement:
The Agreement of Purchase and Sale may be arranged before the purchaser has Received
the disclosure statement, but the agreement may be terminated by the purchaser within ten
days after Receiving the disclosure statement and all amendments thereto.
Down Payment:
The portion of the condo price the buyer must advance from personal resources, before
securing a mortgage. It generally ranges from 5% - 25% of the purchase price.
Easement:
A legal right to use or cross (right of way) another person’s land for limited
purposes. A common example is a utility company’s right to run wires or lay pipe
across property.
Encroachment
An intrusion onto an adjoining property - such as a neighbor’s fence, storage
shed or overhang roof line that partially intrudes onto another’s property.
Encumbrance:
A registered claim for debt against a property, such as a mortgage.
Equity:
The difference between the price for which a condo 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.
Final Closing:
Condos are unique in that they actually have two “closings”, an Interim
closing when occupancy is granted and a final closing when the municipality has
“Registered” the condominium. At this closing the money transfers and the buyer
is given the “deed”.
Floor Plan
The developer’s architects design the living space for each “unit” and
set these plans amidst the floor plate of the building showing proximity to elevators,
garbage chute, stairs, etc. and usually showing north.
Foot Print/Site Plan:
An artists rendering (usually to scale) showing the site and how each building in the
development will sit on the site. The footprint also shows amenities floor facilities and
floor plates of units enabling you to study each floor plan within the context of the
entire development.
Foreclosure:
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 the principal, interest, taxes, heating costs and half of the condo
maintenance fees.
High Ratio Mortgage
A mortgage for more than 75 per cent of a property’s appraised value or purchase
price.
Interest:
The cost of borrowing money. Interest is usually paid to the lender in installments
along with repayment of the principal loan amount.
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.
Interim Occupancy:
When the purchaser of a condominium unit takes possession under an interim occupancy
agreement, he/she in effect has tenant status until the condominium is registered.
Frequently referred to as “initial closing” the developer receives an
“Occupancy Permit” from the municipality and notifies purchasers in writing that
they may now occupy the residence (“unit”). The Interim Occupancy Fee is an
amount approximately equal to the mortgage, maintenance fee and taxes on the unit and
which is paid monthly to the developer until the municipality has completed its
“Registration” of the development (survey the delivered building against Initial
Registered Plan to be sure that the developer has delivered what he promised to deliver).
Once completed the development is given a Registration Number (legal identification) and
the money held in trust is advanced to the developer and a title to their unit is given to
each purchaser. Occupancy fees do not accrue toward the purchaser’s mortgage.
Land Transfer Tax
Land Transfer Tax is a provincial tax payable by anyone submitting a deed or transfer
for registration under the Registry of Land Titles systems. The tax is paid on every
conveyance of land, with a few notable exceptions, such as conveyances for mortgage
purposes or a gift to a charitable organization. In conventional transactions this tax is
paid by the Purchaser.
There are two possible land transfer tax rates. One rate is |
|
|
relatively low
and applicable to most transactions. The second, which is intended to discourage the
acquisition of designated farmland, open space, or Recreational land by non-residents of
Canada, is a higher rate. The Act clearly distinguishes between unrestricted and
restricted land. When property is conveyed to a Canadian resident or is unrestricted, the
lower rate applies. The high rate (20% of the sale price) applies when a non-resident is
acquiring restricted land.
Land Transfer Tax rate for unrestricted property, or any property conveyed to a
Canadian resident is:
.005 x the first $55,000
plus .01 x from $55,000 - $250,000
plus .015 x remainder of purchase price
plus .005 surcharge on single family homes and duplexes for the amount over
$400,000.00
Land Transfer Tax is payable at time of tendering a conveyance to the land registrar.
Lending Value :
The purchase price or market value of a property, whichever is less.
Lien (Mechanic’s):
A claim against a property for money owning. 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. Liens can put a blemish on a Status Certificate and result in
difficulty selling.
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 $180,000 on a home which costs $200,000
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.
Mortgage:
A conveyance of property to a creditor (mortgagee) as security for payment of a debt,
with a right of redemption upon payment of the debt. The concept has been changed somewhat
with the introduction of the Land Registration Reform Act (1985), which now makes
reference to the concept of a charge on the land, rather than the grant of title under a
mortgage.
Conventional Mortgage
A conventional mortgage in Ontario is where the purchaser has Twenty Five (25%)
Percent of the purchase price of a property and the purchaser is Receiving a mortgage
equal to Seventy Five (75%) Percent of the purchase price;
High Ratio
A “high ratio” mortgage is simply a mortgage where the purchaser has a down
payment of less that Twenty Five (25%) Percent and will therefore require a mortgage in
excess of Seventy Five (75%) Percent. First time purchasers can arrange high ratio
mortgages of up to Ninety (90%) Percent with only Ten (10%) Percent down or any variation
up to a conventional mortgage. Insurance premiums are required under this type of mortgage
and may be either paid up front or added to the mortgage.
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) and can be added to the mortgage.
Mortgage Life Insurance:
This insurance guarantees that if you die your mortgage will be paid in full. This
insurance can be conveniently purchased through your lender and the premiums added to your
mortgage payments. However, you may want to compare rates for equivalent products from an
insurance broker.
Mortgage Payment:
A regularly scheduled payment obligation that is blended to include both principal and
interest.
Mortgagee:
The lender who provides the mortgage loan.
Mortgagor:
The borrower who pledges the property as security for the loan.
Multiple Listing Service (“MLS”)
A real estate board computerized system for relaying information to Realtors and the
public (mls.ca) about properties for sale and/or rent/lease.
Net Worth:
Your total financial worth, calculated by subtracting your total liabilities from your
total assets.
Offer To Purchase:
A written contract setting out the terms under which the buyer agrees to buy. If
accepted by the seller, it forms a legally binding contract subject to the terms and
conditions stated in the document.
Option Agreement:
A document stipulating that, in exchange for a deposit, a specified individual is to
be given the first chance of purchasing a property at or within a specified period of
time.
An option holder who does not buy at or within the specified period loses the deposit
and the agreement is cancelled.
Ontario New Homes Warranty Program:
Purchasers in Ontario are protected under the Ontario New Home Warranties Plan Act
(ONHWPA), proclaimed in 1976 along with the associated non-profit corporation called the
Ontario New Home Warranty Program (ONHWP). It is administered under the Ministry of
Consumer and Commercial Relations and governs most new home construction. Anybody building
or selling new homes must be registered. Selling in this context does not refer to a
broker selling property on behalf of an owner. All new homes must be enrolled in the
program, but there are exceptions. For example, seasonal homes or homes built for
temporary occupancy do not have to be registered, provided they meet certain
specifications.
The Ontario New Home Warranties Plan Act defines a home as:
a. A self-contained single-family dwelling, either detached or attached by a common
wall to one or more others;
b. A building consisting of two self-contained one-family dwellings under a single
ownership;
c. A condominium unit, including the common elements;
d. Any dwelling that meets the definition of a home according to the regulations of
the Act, including its additional structures or appurtenances.
Occupancy Fee :
When purchasing a new/presale condo and upon having the builder complete construction
you will be given notice that the Municipality has granted an Occupancy Permit which means
that purchasers can start moving in, however you do not receive the title to the unit
because a title cannot exist until the Municipality inspects the building to insure that
the developer has delivered what he/she represented that they were building (see
registered site plan).
Once the Municipality has inspected the premises and confirmed that the developer has
delivered what was submitted the Municipality issues a Registration Permit. This process
usually takes approximately 4 months so you end up living in a condo that you don’t
own but which you have purchased. The developer has the right to charge an Occupancy Fee
which is a calculation of adding the monthly maintenance fee, plus the forecasted monthly
property taxes, plus your proportionate share of the mortgage that the developer has on
the property. This amount actually just about compares with having your own mortgage with
the exception that no principal accrues to your mortgage (in the first few months of a
conventional mortgage there is almost no principal anyway).
The safety net in all this is that the developer does not get his/her money (your
advances are all tied up in “trust”) until Registration so it is in their best
interests to get it as soon as possible after occupancy.
P.I.T.
Principal, interest and taxes - payments due on a regular basis under the terms of the
mortgage agreement.
Generally, payments are made monthly and include one-twelfth of the estimated annual
municipal and school taxes. Since these taxes change from year to year, this section of
the mortgage will change accordingly.
P.I.T.H.
Principal, interest, taxes and heating - costs used to calculate the Gross Debt
Service Ratio (“GDS”).
Principal
The amount of money actually borrowed.
Phantom Mortgage:
A developer of a property has Received construction financing (mortgage) from a
lending institution and upon occupancy (having completed construction and Receiving an
occupancy permit) passes on a proportionate share of this mortgage funding onto each
purchaser.
Realtor:
A real estate representative who is a member of an organization of persons engaged in
the business of buying and selling real estate, such as the Canadian Real Estate
Association.
Rescission Period:
Under the Condominium Act, Purchaser’s are entitled to a “10 Day Cooling
Off” Period when purchasing a Presale Condo (not to be confused with purchasing a
resale condo). This protection is there to attempt to curb conventional High Pressure
Sales Tactics of the highly trained site sales personnel. When purchasing a new/presale
condo at a sales site you are entitled to go home and cancel for any reason whatsoever
during the following ten days. This period initiates when the sales representative has the
purchaser sign the declaration and receives the document package. A simple one line hand
written notification will suffice or a “Mutual Release” (available at sites) is
signed by both parties.
In resale condominiums, the purchaser is entitled to a Status Certificate. However, in
the case of new or proposed units, the Condominium Act (Section 52(2)) sets out further
requirements: “The Purchaser, before receiving delivery of a deed to or transfer of
the unit, may rescind the Agreement of Purchase and Sale within ten days after receiving
the disclosure statement or, where there has been a material amendment thereto, within ten
days after receiving the material amendment”.
Refinance:
to pay off a mortgage or other registered encumbrance and arrange for a new mortgage,
sometimes with a different lending institution.
Reserve Fund:
Section 36 of the Condominium Act defines the Reserve Fund as “ . . . . a fund
set up by the corporation as a special account for major repair and replacement of common
elements and assets of the corporation . . .”(Section 36(1)).
The fund is typically used for repair and replacement of elements such as roofs,
building exterior finishes, roads, sidewalks, electrical, heating, plumbing, and
Recreational/parking facilities. No portion of the reserve fund can be used except for
purposes for which it was established. Further, the contribution to the reserve fund or
funds shall not be less than 10 per cent of the amount required for contributions to the
common expenses exclusive of the reserve fund. The reserve fund constitutes an asset of
the corporation. It cannot be distributed to any owner except on termination of the
condominium.
Second Mortgage:
An additional mortgage on a property that already has a mortgage.
Special Assessment:
In the event that the costs of repair to the common elements of the condominium
exceeds the amount of money in the reserve fund, a special assessment may be required to
meet such costs. The form of repayment may vary but essentially the unit owners are
required to contribute a specified sum or proportion of costs in addition to normal
monthly common element fees to repay the cost of repair or replacement. When a condominium
unit is resold, the vendor is obligated to disclose any existing, or pending special
assessments to the prospective purchaser.
Statement of Adjustments:
A balance sheet statement that indicates credits to the vendor, such as the purchase
price and any prepaid taxes, and credits to the buyer, such as the deposit and the balance
due on closing.
Status Certificate:
A recent change in terminology in the new condo Act (2001) is the change in the
description of a document that is signed by a Board Member to show the financial health of
the condo and condo corporation from being an “Estoppel Certificate” to a
“Status Certificate”.
The Status Certificate shows:
a. statement of common expenses of the unit and if any default in payment
b. any increases since last budget and reasons
c. any assessments levied
d. budget and financial statement
e. any outstanding judgments and legal actions if any
f. copies of all agreements affecting the condo
g. reserve fund balance and info.
Term:
The length of time during which a mortgagor pays a specific interest rate on the
mortgage loan. The entire mortgage principal is usually not paid off at the end of the
term because the amortization period is normally longer than the term.
Title:
A freehold title gives the holder full and exclusive ownership of land and buildings
for an indefinite period of time.
In condominium ownership, land and common elements of buildings are owned collectively
by all unit owners, while the residential units belong exclusively to the individual
owners.
A leasehold title gives the holder a right to use and occupy land and buildings for a
defined period of time.
Total Debt Service Ratio (“TDS”)
The percentage of gross monthly income required to cover all monthly payments for
housing and all other debts, such as car payments, furniture payments, etc.
Unit:
A three-dimensional space located within the walls, floor, and ceiling of the
condominium structure. The unit owner receives “title” and has exclusive
ownership, use, and responsibility for the unit. With the unit goes an undivided interest
in the common elements specified in the declaration.
Upgrades:
What you see is not always what you get at a sales site. Developers are allowed to
show your spectacularly designed and appointed model suites showing glistening marble and
hardwood floors, stainless steel appliances, whirl pool baths, exotic European cabinetry
yet in reality the condo that you are actually purchasing comes with absolutely none of
these appointments. Upgrades are the costly threshold between what you are shown to get
you to buy and what is actually intended to be delivered. You have got to ask the right
questions here! When entering a model suite the first question always is: “what are
the upgrades and what are standard finishes”.
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 Take Back Mortgage:
Mortgage financing arranged between the seller of the property and the buyer. The
title is transferred to the buyer.
Often this type of loan is a second mortgage which the seller is willing to arrange at
below market rates to ensure the purchaser can purchase the unit. Most of these
arrangements are not renewable or transferable to the next owner of the unit.
Zoning Bylaws:
Municipal or regional laws that specify or restrict land use. |
