Russian Edmonton Real Estate

Amortization –  The number of years it takes    to repay the entire amount of the mortgage.

Appraisal Value –  An estimate of a property’s    market value by a professional Appraiser; used by lenders in determining    the amount of the mortgage.

Debt Service Ratio –  The percentage of a    borrower’s income that can be used for housing costs.

Gross Debt Service (ADS) Ratio –  Gross debt    service divided by household income. A rule of thumb is that ADS should    not exceed 30%. It is also referred to as PIT (Principal, Interest and    Taxes) over income. Sometimes energy costs are added to the formula, producing    BITE, which moves the rule of thumb ADS to 32%.

Total Debt Service (ADS) Ratio –  is the    maximum percentage of a borrower’s income that a lender will consider for    all debt repayment (other loans and credit cards, etc.) including a mortgage.

Equity –  The difference between the price    for which a property can be sold and the mortgage(s) on the property. Equity    is the owner’s stake in the property.

Foreclosure –  A legal process by which the    lender takes possession and ownership of a property when the borrower doesn’t    meet the mortgage obligations.

Mortgage –  A contract between a borrower    and a lender. The borrower pledges a property as security to guarantee    repayment of the mortgage debt. Lenders consider both the property (security)    and the financial worth of the borrower (covenant) in deciding on a mortgage    loan.

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.

Conventional Mortgage –  A mortgage loan      which is 75 per cent or less of the loan-to-value ratio; and does not      require insurance by CMHC or other private insurer.

First Mortgage –  The first security registered      on a property. Additional mortgages secured against the property are “secondary” to      the first mortgage.

High-ratio Mortgage –  A mortgage that      exceeds 75 percent of the loan-to-value ratio; must be insured by either      the Canada Mortgage and Housing Corporation (CMHC) or a private insurer      to protect the lender against default by the borrower who has less equity      invested in the property.

Open Mortgage –  A mortgage that can be      prepaid or renegotiated at any time and in any amount, without penalty.

Pre-Approved Mortgage –  Tentatively approved      by a financial institution for a specified amount, interest rate and      monthly payment.

Second Mortgage –  A second financing arrangement,      in addition to the first mortgage, also secured by the property. Second      mortgages are usually issued at a higher interest rate and for a shorter      term than the first mortgage.

Term Mortgage –  A non-amortizing mortgage      under which the principal is paid in its entirety upon the maturity date.      Sometimes called a straight loan.

Variable-rate Mortgage –  A mortgage for      which payments are fixed, but whose interest rate changes in relationship      to fluctuating market interest rates. If mortgage 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 –  When sellers      use their equity in a property to provide some or all of the mortgage      financing in order to sell the property.

Mortgage Life Insurance –  Insurance that    pays off the mortgage debt should the insured borrower die.

Mortgage Payment –  The regular installments    made towards paying back the principal and interest on a mortgage.

Mortgagee –  The person or financial institution    lending the money, secured by a mortgage.

Mortgagor –  The property owner borrowing    the money, secured by a mortgage.

Mortgage Broker –  A person or company having    contacts with financial institutions or individuals wishing to invest in    mortgages. The mortgagor pays the broker a fee for arranging the mortgage.    Appraisal and legal services may or may not be included in the fee.

Mortgage Insurer –  In Canada, high-ratio    mortgages (those representing greater than 75% of the property value) must    be insured against default by either CMHC or private insurers. The borrower    must arrange and pay for the insurance, which protects the lender against    default.

Mortgage Prepayment Penalty –  Is a fee paid    by the borrower to the lender in exchange for being permitted to break    a contract (a mortgage agreement); usually three months’ interest, but    it can be a higher or it can be the equivalent of the loss of interest    to the lender.

Portability –  A mortgage feature that allows    borrowers to take their mortgage with them without penalty when they sell    their present home and buy another one.

Prepayment Clause –  A clause inserted in    a mortgage, which gives the mortgagor the privilege of paying all or part    of the mortgage debt in advance of the maturity date.

Principal –  The mortgage amount initially    borrowed or the portion still owing on the mortgage. Interest is calculated    on the principal amount.

Rate –  (Interest) The return the lender receives    for advancing the mortgage funds required by the borrower to purchase a    property.

Refinancing –  The process of obtaining a    new mortgage, usually at a lower interest rate, to replace the existing    mortgage.

Secondary Financing –  Second, third, fourth,    etc. mortgages, secured by a property “behind” the first mortgage.

Term –  The actual life of a mortgage contract, from    six months to ten years, at the end of which the mortgage becomes due    and payable unless the lender renews the mortgage for another term (See    Amortization).

Weekly Payments –  Mortgage payments made    weekly or 52 times per year.