27 Oct 2015
This vs That Volume 2
This is a sequel to This vs That, which I published last week on the Dominion Lending Centres website.
A good idea always has an encore presentation. Heck, Rambo was so good they made another four movies. Here are a handful of additional terms used in the real estate and mortgage industry and hopefully the explanation will provide some clarity.
Mortgagor vs Mortgagee
The mortgagor is the borrower and the mortgagee is the lender.
Portable vs Assumable Mortgage
The act of porting a mortgage allows the borrower to transfer the terms, conditions and interest rate of the current mortgage to the home the borrower would like to purchase. There is sometimes a blend and extend that occurs as well. An assumable mortgage allows the purchaser to assume or take over the responsibilities and liabilities under the mortgage from the vendor.
Deposit vs Down Payment
The deposit is a sum of money negotiated in a real estate purchase/sale transaction by the seller and buyer upon removing subjects. It’s a sign of following through with the transaction in good faith. The deposit is then held “in-trust” with the Realtor and transferred to the lawyer for completion. The down payment is a sum of money required by the lender to seek financing to purchase the subject property. The percentage of down payment may vary from scenario to scenario as lender policies can shift with the economy. The deposit is a portion of the down payment. For example, if the purchase price of the home is $450,000 and the buyer is putting $45,000 (10%) down to secure 90% financing, the deposit is $15,000 (held in “in-trust”) upon removing subjects, then only $30,000 is required to be paid to the lawyer at completion.
Closed vs Open Term
A closed mortgage that is terminated prior to the maturity date will be levied a penalty, either 3 months interest or an Interest Rate Differential calculation. An open mortgage, if terminated prior to maturity, will not be charge a penalty at all. One could have a Fixed Closed or Fixed Open mortgage and the same applies to variable – one could have either an open or closed term.
Term vs Amortization (Life of the Mortgage)
The term of the mortgage represents the duration of the contractual obligation to the lender. Terms range from six months to five year with some lenders offering seven and 10 year terms. Amortization or the life of the mortgage is the process of repaying a loan by way of periodic payments. These payment amounts are a combination of principal and interest. The most common amortization schedule that borrowers follow is 25 years. The Latin word admortire means “to kill.” Most borrowers want to kill their mortgage as fast as possible.
Chattel vs Fixture vs Real Property
Chattels are articles of personal property like TVs, cars, computers, bikes etc. A fixture is a chattel that has become attached to real property over time. There is a 2 part test to consider the intended and purpose of affixation. Real property generally consists of land and whatever is erected, growing upon or affixed to the land.
Freehold vs Leasehold Property
The owner of the freehold interest has full use and control of the land and the buildings on it, subject to any rights of the Crown, local land-use bylaws, and any other restrictions in place at the time of purchase. In some cases, you might purchase the right to use a residential property for a long, but limited, period of time – this is called a leasehold interest. Leasehold interests are frequently set for periods of 99 years.
Will there be a This Vs That Volume 3 – stay tuned to find out!