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Glossary: Canadians Get the Word - Part II

Written by Posted On Tuesday, 12 September 2000 00:00

Canadians take their understanding of home and real estate for granted and that gets many of them into trouble. The subtleties of legal and financial discussions or contracts can be lost on you if you do not realize the significance of each word. Yes, use professional advisers in these situations, but learn the language so that you can protect your own interests and achieve your goals.

Here's the rest of our glossary. Let me know if you'd like more on these terms or there's a concept that you'd like to explore.

High-ratio financing - a mortgage for more than 75 percent of the appraised value of the property that requires mortgage default insurance to protect the lender against borrower default. The one-time premium is paid by the borrower. Interest - the money charged by a lender for the use of funds. Interest, usually a nondeductible expense, may be income tax deductible when funds are borrowed for investment purposes.

Interest Differential - a mid-term discharge penalty to the borrower which is equivalent to the mortgage lender's loss if the funds have to be reinvested and the current interest rate is lower than the rate of the mortgage. Mortgage - a contract between a borrower or mortgagor (memory tip: pay up "or" else) and a lender or mortgagee (memory tip: "gee" isn't nice to get all that interest)  that represents the security given to the lender by the borrower in return for a loan. The definition varies slightly in different provinces. Personal Covenant - a legally-binding promise made by a borrower to repay the mortgage, including all interest. "Personal" refers to the lender's right to personally sue the borrower for breach of promise or default of the mortgage.

Portability Privilege - the right of the borrower to move a mortgage to another property, subject to lender approval. Prepayment Privilege - an option in a mortgage contract that allows the borrower to repay all or a portion of the mortgage debt ahead of schedule, according to the terms of the mortgage contract. See open mortgage. Principal Residence - is the property that an individual identifies as the asset that they claim tax-free profit on under the capital gains provision of the Canadian Income Tax Act.

Open Mortgage - a mortgage contract that allows prepayment of some or all of the debt according to conditions in the agreement. Real Estate Salesperson or Representative - a person, often incorrectly addressed as "agent," who has met government criteria for registration as a real estate salesperson and is employed by a broker to trade in real estate on behalf of the broker. A Canada Customs and Revenue Agency (was Revenue Canada) income tax ruling that created "independent contractor" status for salespeople, giving them more tax deductions, has left a false impression that salespeople are legally independent of their broker.

Realtor - an agent or broker that belongs to a real estate board and the trademark of the Canadian Real Estate Association. Salespeople may also be allowed to use this trademark.

Renewal Privilege - the right of the borrower to renew the mortgage at the end of the term under conditions stipulated in the mortgage contract. Term - a portion of the amortization period and the length of time the agreement between the borrower and lender lasts regarding interest rates and repayment terms. At the end of the term, the entire balance may be paid off or the mortgage renewed for another term.  

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PJ Wade

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