The value the owner has in a property over and above all mortgages against the property. It is usually the difference between the market value of the property and any outstanding encumbrances.
Financial Statements
As part of regular operations, businesses (corporation, partnership, etc) have to file taxes with Canada Revenue. Usually this is done by an accountant, who at the same time generates the annual Financial Statements for the business. For a small business the Financial Statements are typically 5-6 pages in length, and include the following components:
- Notice to Reader – a letter stating the name of the accountant and the terms under which they are working to prepare the financial statements
- Balance Sheet
- Statement of Income and Retained Earnings
- Notes or explanations for unusual items in the balance sheet or income statement
First Time Home Buyer Programs
As a first time home buyer, there are several programs available to assist with the purchase of a property.
BC Property Transfer Tax Exemption for First Time Home Buyers
CRA Home Buyer’s Plan (RRSP withdrawal)
National Housing Strategy – First Time Homebuyer Incentive (shared equity partnership)
https://www.placetocallhome.ca/fthbi/first-time-homebuyer-incentive
Fixed-Rate Mortgage
The mortgage interest rate is fixed for the term of the mortgage.
Foreclosure
A process undertaken by lawyers where the lender obtains ownership of the property after the borrower has not made regular payments per the loan agreement.
Gross Debt Service (GDS) Ratio
The percentage of gross income required to cover monthly payments associated with housing costs. Most lenders recommend that the GDS ratio be no more than 32% of your gross (before tax) monthly income.
Guarantor
A guarantor is someone who signs a personal contract with the lender agreeing to compensate the lender for any losses incurred if a mortgage goes into foreclosure. As a guarantor, you are not an owner of the property (your name is not on the title certificate) and you are not a mortgagor (borrower) on the mortgage contract either. Guarantors are typically requested if the mortgage applicants have enough income and down payment to qualify for the mortgage on their own, but have not established sufficient credit history to be approved on their own.
The benefit of being a guarantor is that the mortgage debt does not count against you when you are applying for other debt such as mortgages or vehicle loans. You also will not have any capital gains taxes should the property sell, since you are not a legal owner.
The disadvantages of the guarantor position are that you have no legal rights to the property or the mortgage contract, which means the property can be sold without your knowledge or consent and you cannot call the lender to request any mortgage details or make any changes.
Being a guarantor is sometimes compared against being a co-signer on a mortgage, which is a more secure position. See Co-Signer for more information.
High Ratio Mortgage
A mortgage where the mortgage amount is greater than 80% of the property value (purchase price or appraised value).
Because the borrower has less than 20% equity invested in the property, the loan is considered to be of a higher risk and requires mortgage insurance from a mortgage default insurer (typically CMHC, Sagen, or Canada Guaranty).
Mortgages that are 80% of the property value or less are called Conventional Mortgages.
Holdback
Money withheld by the lender during the construction or renovation of a house to ensure that construction is satisfactorily completed at every stage.
Interest Adjustment Date
A date from which interest is calculated when mortgage funds are advanced before a regular payment cycle. For example if a mortgage is advanced March 29th and regular monthly payments commence May 1st, there will be an interest adjustment for 3 extra days.