GLOSSARY    E to L

EASEMENT

A right of access to (or over), or use of another person's land for a specific reason - such as a driveway or a public utility.

ENCUMBRANCE

A claim for money owing, registered against a property. For example, a mortgage.

EQUITY

The remaining value in your property after all mortgages and loans registered against the title is subtracted from its' appraised value.

For example:

value         $150,000   minus
mortgage    $65,000   minus
2nd mtg      $20,000   equals      EQUITY    $65,000

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EXPROPRIATION

The owner of property may be forced to transfer all, or part of his property to federal governments, local governments, or local school boards. By expropriating the property, the government (or school board) must pay compensation for taking the land. If the parties cannot agree upon a price there is a provision for arbitration or judicial proceedings to determine the amount to be paid.

FIRST TIME HOMEOWNER PLANS

Most plans are now available to anyone, not just first time owners.
Some plans have strange definitions of 'first time homeowner'.

• Up to $20,000 per qualified person can be withdrawn from an RRSP (registered retirement savings plan). For details, go to 'What is the homebuyers' plan?'
  For Revenue Canada's definition of a first time homeowner go to 'If you are a first...'

• You can purchase property with a minimum of 5% down.

• In Ontario you can receive a break in the Land Transfer Tax
  and in British Columbia some first time homeowners pay no Property Transfer Tax.

Please check with your mortgage broker about other plans for first time homeowners in your province.

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FORECLOSURE

The process whereby a lender takes over legal ownership of property because of non-payment of the mortgage.
The legal process for a foreclosure can take months. If you are having financial problems and want to know your legal position, you should consult a lawyer.

GE CAPITAL MORTGAGE CORPORATION

GE Capital (a sub-division of the American giant General Electric) is a private company providing mortgage insurance. Generally, they have identical policies and premiums to CMHC, a Canadian crown corporation. CMHC is the major provider of mortgage insurance in Canada.

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GUARANTOR

A person who promises the lender she or he will repay a debt if the principal debtor defaults.

A guarantor will be requested if the clients who apply for a mortgage are unable to obtain financing by themselves. Circumstances where this could happen would include: insufficient employment history, poor history of debt repayment or unconfirmable income (see application process).

Just because someone is willing to be a guarantor does not mean the mortgage will automatically be approved.
The guarantor becomes part of the mortgage application / approval process. The guarantor will have to disclose his or her assets & liabilities, income, and have a credit check done. The total 'picture' of all applicants is considered by the lender.

Once approved, the guarantor will have to sign the mortgage documents, showing his or her obligation to the lender. Before signing, the guarantor should obtain 'independent legal advice.' The guarantor should consult a lawyer who is not part of the real estate transaction, and who will explain to the guarantor exactly what his or her responsibilities will be should the primary debtor default on the mortgage.

A guarantee is a secondary obligation arising only on default by the primary debtor. A creditor (the lender) has no rights against the guarantor until the primary debtor defaults. However, as soon as the primary debtor defaults on even one payment, the lender may request payment from the guarantor. The lender does not have to notify the guarantor of the default before starting an action to enforce the guarantee.
Consequently, it is very important that you understand what you are signing if someone asks you to be a guarantor. Get legal advice from your own lawyer.

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HOLDBACK

An amount of money withheld by a lending institution (or your lawyer) during the construction of a house. This ensures that construction is progressing satisfactorily at each stage. The amount of the holdback is usually equivalent to the cost to complete the construction, plus any amount required by law to satisfy the lien holdback (usually 10% of the construction costs).

HOW MUCH DO YOU QUALIFY FOR?

It is possible for you to work out approximately how much money you qualify for. However, there are so many variables it is advisable to meet with a mortgage broker and go over your details with them, prior to looking at properties.

Many internet sites offer a database that calculates how much you qualify for, use these as a guide only. They do not allow for most variables - many people actually qualify for more money, and some for less!

Internet sites belonging to lending institutions offer a way to apply for a mortgage on line - but are you getting the best interest rate? Do they help you in choosing the type of mortgage most suited to your needs? What benefits are allowed? Can you prepay any money early? These are all questions your mortgage broker can help you with.

To find out what information is needed to get you the best possible mortgage read through How do they calculate how much you can afford?.

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ICI - Industrial, Commercial & Investment

These initials stand for 'Industrial, Commercial & Investment'.

It is harder to arrange financing for Industrial & Commercial properties, fees will usually be charged by both the mortgage broker and the lender.

Mortgage financing is quite easy to obtain for residential real estate intended as an investment.

Mortgage brokers can arrange financing for all types of properties.

INSURANCE

See either:

• life insurance:- personal insurance to cover the outstanding balance of the mortgage,
• house insurance:- to cover the value of your property,   or
• high ratio mortgage insurance:- borrowing more than 75% of the value of the property.

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INTER ALIA MORTGAGES

An inter alia mortgage is a mortgage secured by more than one property. A single mortgage document is registered, covering all properties used as collateral.

INTEREST

The cost of borrowing money.
Interest is charged on the outstanding amount of the loan.

In Canada, mortgage interest is not always tax deductible.

Interest paid on money borrowed to purchase a primary residence is NOT tax deductible.
However, you may be able to deduct the interest portion of your payment if you borrow money, using your primary residence as collateral, then invest the funds.

Check with a tax accountant or Revenue Canada to obtain more details about tax deductions.

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INTEREST ADJUSTMENT DATE / INTEREST ADJUSTMENT AMOUNT

This is best explained by example:

Let's say you are buying a house for $150,000 with a completion date of October 31st and you are getting a mortgage of $100,000 from your lending institution.
The lender gives your lawyer the mortgage money on October 31st - so as of that date you owe the lending institution interest.

If you have chosen to make monthly payments, on the 15th of every month, then your interest adjustment date will be November 15th. On this date your institution will collect the interest amount owing since they disbursed the money (gave the money) to your lawyer.
In other words $100,000 x interest rate factor x 16 days = interest adjustment amount.
It is 16 days because both October 31st and November 15th are counted. Your first full payment will be December 15th.
The same sort of payment may be required if you are paying by any of the non-monthly options.

Some lenders will have the interest adjustment amount collected from you by the lawyer, along with all the other adjustments. This means that you would pay the interest adjustment amount on the completion date. In the example, your first full payment date would still be December 15th.

Usually the interest rate for the interest adjustment period is the same as your mortgage contract, however this is not always the case.

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INTEREST ONLY MORTGAGES

Credit lines and equity access mortgages are usually 'interest only.' The lender will normally require you to pay the interest owing on a monthly basis, but payments reducing the balance owing are controlled by the borrower.

INTEREST RATE

In Canada the amount of interest charged to a borrower for residential first mortgages is stated as a percentage. For example 8.25% 'compounded semi-annually, not in advance.'

'Compounded semi-annually is an old English term, from the days when ledgers were kept by hand. The interest was calculated twice a year and added on to the principal owing, then payments were subtracted. Even though we now use computers, the same method exists.

'Not in advance' refers to the payment being collected at the end of a time period. If you are paying a mortgage, the June 1st payment pays for the previous month of May. It is the opposite of renting where the payment on June 1st pays for the month of June.

Your financial institution is required by law to indicate the 'equivalent' semi-annual interest rate. This is so you can compare apples to apples and oranges to oranges. Some lenders appear to have a better interest rate, but they are advertising an interest rate compounding monthly. Many variable rate mortgages compound monthly
For example: 8.25% monthly rate is equivalent to 8.393% semi-annual rate.

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JOINT TENANCY

See also 'Tenants in Common.'

'Joint tenancy' means ownership of real estate property is in the names of more than one person, each having an undivided interest. For example, if there are two people, they each own 50 %; three people own 33.33% each; four people own 25% each etc. In the event of the death of one person, ownership automatically passes to the others.

A combination of 'joint tenants' and 'tenants in common' is also possible.

LAND PURCHASE / LOT PURCHASE

The purchase of land with no building on it, commonly called 'bare land.' Lenders will usually loan funds with a collateral mortgage unless a house (or other residential property) is to be built immediately.

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LEGAL DESCRIPTION

As well as having a civic address (e.g. 123 Main Street), all properties have a legal address, or description. This is the formal identification of each division of property.

For example:

Lot 12, Block 36, LDist 65, Section 17, Range 4E, Plan 20422.

LENDER / LENDING INSTITUTION

Two terms used to describe any financial institution lending money for the purpose of buying property. They include the major banks, smaller banks, foreign banks, credit unions, caisse populaires, trust companies, private funds, etc....

Loans officers only work for one lending institution and are typically unaware of the products offered by other lenders. Mortgage brokers, are usually better trained, and deal with a wide range of products and lenders.

LENDING VALUE

The lower of the purchase price or appraised value of a property.

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LIEN

A claim registered against the title of a property for money owing. For example, if a company does construction work on your house, but is not paid, that company may register a lien against the property.

The lien must be properly filed by the claimant and has a limited life, which varies by province.
As long as the lienholder takes action within the prescribed time period the homeowner may be obliged to pay the amount claimed by the lienholder.
The lienholder can force the sale of the property to pay off the debt.

LIFE INSURANCE

Most of the major lenders will offer you their life insurance policy to cover the mortgage. It may appear the rates offered are reasonable.
Before accepting it, consider the following:

Insurance offered by a lender is tied to the mortgage.

• Only the outstanding balance is covered, so your premiums continually pay for less and less coverage.
  
• The insurance coverage can only be used to pay off the outstanding mortgage balance.
  
• The insurance cannot be transferred to another mortgage, either with the same company or with someone else - you have to re-apply and if your health status has changed, you may be declined insurance.

Insurance offered by an insurance broker covers more:

• The amount of your coverage remains constant.
  
• The insurance proceeds can be used for whatever the beneficiary wishes. It could be used to pay off the mortgage, or for other purposes.
  
• If you choose to transfer your mortgage from one institution to another you will not have to re-apply for coverage. This could be an invaluable asset should your health status change in the meantime.
  

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LOAN TO VALUE

This is the ratio between the mortgage amount and the value of the property, usually expressed as a percentage.
For example:

Your purchase price (and appraised value) is $200,000
Your mortgage amount is $140,000
Therefore, your loan to value ratio is 70%

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