GLOSSARY    A to D

ARM'S-LENGTH SALE

'Bona fide arm's-length sale' means a transaction in cash (or terms equivalent to cash) for specified property rights after reasonable exposure in a competitive market between a willing, well informed and prudent buyer and seller and assuming neither party is acting under undue compulsion or duress.
If you are unsure please check with your lawyer.

ASSIGNMENT OF INTEREST

An assignment of interest in a mortgage most commonly occurs when switching a mortgage from one lending institution to another.
Instead of the borrower incurring high legal costs to discharge one lender's mortgage and register documents from another, a legal 'assignment of mortgage' is registered with the Land Titles Office. The assignment document recognises that the debt has been legally transferred from one lender to another.

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ASSUMPTION / ASSUMABLE MORTGAGE

If the buyer of a property takes over the conditions of the seller's mortgage (the amount owing for the remaining term at the existing rate ), this is called assumption of the mortgage

As a BUYER, you need to look at this carefully. In some cases, it will work in your favour, especially if the high ratio insurance premium has already been paid.
The first thing you have to do is to find out the details of the mortgage you could be taking over - what is the amount of the mortgage remaining? What is the interest rate and when is the renewal date (the date the rate ends)? How much time is remaining in the amortization?

You need to make sure that the mortgage amount is enough for your needs and that the rate you are assuming is comparable to (or better than) current rates for the same length of time.
You also need to consider the conditions of the mortgage contract - you may find it contains conditions you don't like.

If interest rates have been going up, then assuming a mortgage could be very much in your favour.
However, if rates have been stable, or going down, you will probably get a better mortgage by going to your mortgage broker and applying for a new mortgage.

All of the major lending institutions insist on the purchaser qualifying for the assumable mortgage, so if you would not normally qualify for a mortgage, you will not qualify to assume a mortgage either.

If you are SELLING your property, and you have a good interest rate, you should first look into using any portablity option offered by your lending institution. Usually you must be purchasing a new home at the same time as selling the old home, and you still need a mortgage.

However, there are two main reasons for letting someone assume your mortgage:

1. If the real estate market is depressed in your area and you have a good interest rate on your mortgage, an assumable mortgage may help you to attract potential purchasers.

2. If someone assumes your mortgage (the whole amount) your lending institution should not charge you any penalty.

If you are selling your property and your lending institution does NOT insist on the buyer qualifying for your mortgage, the most important thing to check is whether you will be released from that mortgage!   If not, you could still be liable for the debt even though you have sold the property!

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BALANCE

The amount of the mortgage (or loan) principal owed to a financial institution as of the current date, or a specific date.

BRIDGE FINANCING / INTERIM FINANCING

'Timing is everything.....'

This is short term financing to bridge the time gap between when you have to pay the balance of money for your new home, and the date you receive funds for the sale of your present home.

For example:

You have purchased a new house for $150,000 with a closing date of August 31st.
You sell your house for $150,000 with a closing date of September 30th.

No financial institution likes to lend money for a short period of time, it costs them too much in computer time and staff costs. If you are in this situation, you can expect to pay a high interest rate and a fee of several hundreds (or thousands) of dollars to get this money.

If you can change those closing dates, you will save a lot of money!

Buying before you have negotiated a sale on your current home is a very risky proposition. Only consider it if you can afford the payments on both homes for an extended period of time, and you have enough equity to accomplish this.

If you find the 'perfect' home and you don't want to risk losing it with a 'subject to the sale of...' clause, you may want to explore an 'option to purchase' with your realtor or lawyer.

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BUILDING PERMIT

A certificate that must be obtained from the municipality by the property owner or contractor before a building can be erected, repaired or changed. It must be posted in a conspicuous place until the job is finished and passed as satisfactory by a municipal inspector.

'CASH BACK' MORTGAGE

Several lending institutions offer a 'cash back' incentive for choosing them as your mortgage lender.

The amount of the 'cash back' is a percentage of the mortgage amount you are borrowing - usually 3%. For example, if you borrow $100,000 you could receive as much as $3,000 back from the lender.

There are several negative aspects to these offers.

• You will probably pay the full posted interest rate.
• You cannot use the funds as part of your downpayment.
• If you pay off the mortgage before the end of the term you will have to repay the lender some of the 'cash back' money.

The advantage is, you can choose how to spend the cash you receive. For example, you may have too much credit card debt and by paying down your debt you may qualify for a bigger mortgage.
Perhaps you need new furniture, or to make some improvements to your new house.

Is the amount of money you receive on these mortgages worth it?
The following comparison shows the difference between receiving cash now, versus saving money over the term with a discount on the mortgage rate.

Most mortgage brokers are able to get you up to a 1% discount on the posted mortgage rates.

As you can see, you will save more money over the term by getting a lower interest rate.
You really need to decide if you need the money now, or if the lower monthly payment and lesser interest paid is more important.
Discuss your situation with your mortgage broker to see which is the best for your circumstances.

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CERTIFICATE OF INDEFEASIBLE TITLE

In British Columbia this is the name of the legal document that proves your ownership of property. In reality this document never leaves the Land Titles Office. The result of this system (called the Torrens system) is that ownership of property is always current, and (except for extremely rare cases) never in doubt.

Any changes in ownership, or charges against the property must be registered with the Land Titles Office. This ensures up-to-date information regarding each piece of land in British Columbia.

CHATTELS

Chattels are personal property such as vehicles, household goods, furniture, and fixtures not permanently attached to the house (such as washer & dryer).

CLEAR TITLE

Property against which no mortgages are registered.

CMHC

These initials stand for Canada Mortgage and Housing Corporation, a Crown corporation administering the National Housing Act (NHA) for the federal government. CMHC is a provider of high ratio mortgages.

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COLLATERAL

An asset that can be used as security for a loan.

COLLATERAL MORTGAGE

A mortgage on real estate which is used as security for a loan. The funds borrowed can be used to buy a property, or for other purposes such as home renovations or for a vacation. The interest rates for collateral mortgages are frequently higher than normal mortgages. These mortgages can usually be paid off at any time with no penalty.

COMMITMENT LETTER / MORTGAGE APPROVAL

Written notification from the mortgage lender to the borrower approving a specified amount of mortgage funds under specified conditions (e.g. a satisfactory appraisal of the property to be mortgaged).

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COMMON AREAS

These are part of strata properties. They are areas designated for common usage, such as communal gardens, or a lobby in an apartment building.
Your strata fees will include an amount for the upkeep of these areas.

CONTRACT OF PURCHASE AND SALE

Before signing anything, consult your lawyer.

The contract of purchase and sale is a binding contract which contains all of the terms and conditions involved in the purchase of a property. It includes the purchase price, the civic address and legal description, mortgage details, occupancy details and a wide range of other possible conditions.

CONVEYANCE

The transfer of ownership from one person (or company) to another.

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CO-SIGNOR

When more than one person is borrowing money, all persons signing the mortgage contract are considered co-signors. The obligation of each person is 'joint and several.'   This means that collectively they owe the debt, but also each individual signing owes the whole amount borrowed and the whole amount of each payment.

For example:

Supposing two friends (A & B) buy a house together, 'A' loses his job and has no other income. 'B' continues working as normal.

'A' is unable to make payments as he has no income.
'B' therefore has to pay the whole mortgage payment by himself.
So if the mortgage payment was $900 and each friend previously paid $450 per month, 'B' would find himself paying the whole $900 until 'A' was employed again.

CREDIT LINE

A credit line is usually secured by a collateral mortgage and is normally based on a floating rate.

You will have a maximum amount of money you can borrow. While your balance is zero ($0) you will pay no interest.
As you borrow money the lender will calculate how much interest you owe based on the daily balance. The lender usually debits your account once a month to pay the interest.
You decide when, and by how much, to pay down the principal owing.

These credit lines are very useful if you are doing renovations.

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DEED OF CONVEYANCE

A legal document, transferring ownership of property.

DEFAULT

Non-payment of installments due under the mortgage contract.
Not keeping up with your mortgage payments (or property tax payments) can eventually lead to foreclosure on the property.

DISCHARGE OF MORTGAGE

A legal document signed by the lender and given to the borrower (or borrowers' lawyer) when a mortgage has been paid in full. Do NOT burn this document if you are celebrating the end of your payments!
In British Columbia, if you receive this document you need to present the document to Land Titles office to complete the discharge.

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