Definition of Earnest money

Earnest money

A deposit made by potential home buyers during negotiations with the seller. The sum shows a seller that a buyer is serious about purchasing the property. The money usually is counted toward the down payment.

Binder

An offer to purchase or earnest money receipt, acknowledging a deposit along with agreement to enter into a contract for the sale of real estate.

Fiat Money

Fiat money is paper currency made legal tender by law or fiat. It is not backed by gold or silver and is not necessarily redeemable in coin. This practice has had widespread use for about the last 70 years. If governments produce too much of it, there is a loss of confidence. Even so, governments print it routinely when they need it. The value of fiat money is dependent upon the performance of the economy of the country which issued it. Canada's currency falls into this category.

Money Laundering

This is the process by which "dirty money" generated by criminal activities is converted through legitimate businesses into assets that cannot be easily traced back to their illegal origins.

Buy/Sell Agreement

this is an agreement entered into by the owners of a business to define the conditions under which the interests of each shareholder will be bought and sold. The agreement sets the value of each shareholders interest and stipulates what happens when one of the owners wishes to dispose of his/her interest during his/her lifetime as well as disposal of interest upon death or disability. Life insurance, critical illness coverage and disability insurance are major considerations to help fund this type of agreement.

Cash Surrender Value

this is the amount available to the owner of a life insurance policy upon voluntary termination of the policy before it becomes payable by the death of the life insured. this does not apply to term insurance but only to those policies which have reduced paid up values and cash surrender values. A cash surrender in lieu of death benefit usually has tax implications.

Canadian Deposit Insurance Corporation

Better known as CDIC, this is an organization which insures qualifying deposits and GICs at savings institutions, mainly banks and trust companys, which belong to the CDIC for amounts up to $60,000 and for terms of up to five years. Many types of deposits are not insured, such as mortgage-backed deposits, annuities of duration of more than five years, and mutual funds.

Incontestable Clause

this clause in regular life insurance policy provides for voiding the contract of insurance for up to two years from the date of issue of the coverage if the life insured has failed to disclose important information or if there has been a misrepresentation of a material fact which would have prEvented the coverage from being issued in the first place. After the end of two years from issue, a misrepresentation of smoking habits or age can still void or change the policy.

Independent Broker

this is a provincial government licensed independent businessperson who usually represents five or more life insurance companies in a sales and service capacity and who is paid a commission by those life insurance companies for sales and service of life insurance products. We for example, have been in business for 12 years and regularly place new business with over twenty different life insurance companies.

Intestate

this means dying without a will, in which case the provincial laws of the province in which the death occurred apply to the manner in which assets will be distributed. In other words, if you don't write your own will, the government will do it for you after your death and it may not be as you would have wished.

Last To Die Coverage

this means that there are two or more life insured on the same policy but the death benefit is paid out on the last person to die. The cost of this type of coverage is much less than a first to die policy and it is generally used to protect estate value for children where there might be substantial capital gains taxes due upon the death of the last parent. this kind of policy is also valuable when one of two people covered has health problems which would prohibit obtaining individual coverage.

Money Laundering

this is the process by which "dirty Money" generated by criminal activities is converted through legitimate businesses into assets that cannot be easily traced back to their illegal origins.

Registered Retirement Savings Plan (Canada)

Commonly referred to as an RRSP, this is a tax sheltered and tax deferred savings plan recognized by the Federal and Provincial tax authorities, whereby deposits are fully tax deductable in the year of deposit and fully taxable in the year of receipt. The ability to defer taxes on RRSP earnings allows one to save much faster than is ordinarily possible. The new rules which apply to RRSP's are that the holder of such a plan must convert it into income by the end of the year in which the holder turns age 69. The choices for conversion are to simply cash it in an pay full tax in the year of receipt, convert it to a RRIF and take a varying stream of income, paying tax on the amount received annually until the income is exhausted, or converting it into an annuity with guaranteed payments for a chosen number of years, again paying tax each year on Moneys received.
If you are currently 69 years of age, you may still contribute to your own RRSP until December 31st of this year and realize a tax deduction on this year's income. You must also, however, make provisions before December 31st of the year for converting your RRSP into either a RRIF or an annuity, otherwise, the full balance of your RRSP becomes taxable on January 1 of the following year. If you are older than age 69, still have earned income, and have a younger spouse, you may continue to contribute to a spousal RRSP until that spouse reaches 69 years of age. Contributions would be based on your own contribution level and are deducted from your taxable income.

Registered Retirement Income Fund (Canada)

Commonly referred to as a RRIF, this is one of the options available to RRSP holders to convert their tax sheltered savings into taxable income.

Suicide Clause

Generally, a suicide clause in a regular life insurance policy provides for voiding the contract of insurance if the life insured commits suicide within two years of the date of issue of the coverage.

Account Value

The sum of all the interest options in your policy, including interest.

Accumulated Value

An amount of Money invested plus the interest earned on that Money.

Automatic Benefits Payment

Automatic payment of Moneys derived from a benefit.

Benefit Value

The amount of cash payable on a benefit.

Canada Pension Plan (CPP)

A plan that provides retirement and long term disability income benefits to residents of Canadian provinces (excluding Quebec).

Canadian Life and Health Insurance Association (CLHIA)

An association of most of the life and health insurance companies in Canada that conducts research and compiles information about the life and health insurance industry in Canada.

Cash Surrender Value

Benefit that entitles a policy owner to an amount of Money upon cancellation of a policy.

Estate Planning

An insurance program designed to provide funds for insured's dependents upon death of the insured, and to also conserve, as much as possible, the personal assets that the insured wants to bequeath to heirs.

Job Loss Insurance (Credit Insurance)

Coverage that can pay down your debt should you become involuntarily unemployed. The payment is made to your creditors to reduce your debt owing.

Personal Line of credit (Credit Insurance)

A bank's commitment to make loans to a borrower up to a specified maximum during a specific period, usually one year.

Agreement of Purchase and Sale

A legal agreement that offers a certain price for a home. The offer may be firm (no conditions attached), or conditional (certain conditions must be fulfilled before the deal can be closed).

Appraisal Value

An estimate of the market value of the property.

Blended Payments

payments consisting of both a principal and an interest component, paid on a regular basis (e.g. weekly, biweekly, monthly) during the term of the mortgage. The principal portion of payment increases, while the interest portion decreases over the term of the mortgage, but the total regular payment usually does not change.

Canada Mortgage and Housing Corporation (CMHC)

The National Housing Act (NHA) authorized Canada Mortgage and Housing Corporation (CMHC) to operate a Mortgage Insurance Fund which protects NHA Approved Lenders from losses resulting from borrower default.

Conditional Offer

An offer to purchase subject to conditions. These conditions may relate to financing, or the sale of an existing home. usually a time limit in which the specified conditions must be satisfied is stipulated.

Deposit

A sum of Money deposited in trust by the purchaser when making an offer to be held in trust by the vendor's agent, broker, lawyer or notary until the closing of the transaction.

Firm Offer

An offer to buy the property as outlined in the offer to purchase with no conditions attached.

Gross Household Income

Gross household income is the total salary, wages, commissions and other assured income, before deductions, by all household members who are co-applicants for the mortgage.

Home Equity

The difference between the price for which a home could be sold (market value) and the total debts registered against it.

Payment Frequency

The choice of making regular mortgage payments every week, every other week, twice a month or monthly.

Prepayment Charge

A fee charged by the lender when the borrower prepays all or part of a closed mortgage more quickly than is set out in the mortgage agreement.

Prepayment Option

The ability to prepay all or a portion of the principal balance. Prepayment charges may be incurred on the exercise of prepayment options.

Assessed value

The dollar value of an asset assigned by a public tax assessor for the purposes of taxation.

Coach home

One of a group of homes in a two-story building, with own garage and entrance.

Courtyard home

A home with a courtyard as its main entrance.

Home warranty

Like any other warranty, this guarantees the property against failure of mechanical systems, such as plumbing, electrical, heating and installed appliances.

Patio home

Small, single-family home with a patio.

Single-family home

A detached house.

Townhouse

One of a row of houses connected with common side walls.

Assumption

Allows a buyer to assume responsibility for an existing loan instead of getting a new loan. The assumption may have to be approved by the lender.

Ballast

A transformer that steps up the voltage in a florescent lamp.

Coffered Ceiling

A ceiling with recessed square panels, bordered with trim for ornamental purposes.

Fuse

A device often found in older homes designed to prEvent overloads in electrical lines. See Circuit Breakers.

aterial used to cover the interior framed areas of walls and ceilings

Lath and Plaster

The most common wall finish prior to the introduction of drywall. Thin wood strips (lath) were nailed onto the framing as a base for the sand/lime plaster (see diagram).

Pilaster

A projection or the foundation wall used to support a floor girder or stiffen the wall.

R Value

A measure of insulation. A measure of a material's resistance to the passage of heat. The higher the R value, the more insulating "power" it has. For example, typical new home's walls are usually insulated with 4" of batt insulation with an R value of R-13, and a ceiling insulation of R-30.

Red-Lined Prints

Blueprints that reflect changes and that are marked with red pencil.

Soffit

The underside of the roof overhang or porch ceiling that covers the rafter bottoms. this horizontal surface usually has vents to allow air into the attic.

Sole Plate

See Bottom Plate.

Stick-Built Home

A house built without prefabricated parts. Also called conventional building.

Sump

A pit in the basement in which water collects to be pumped out with a sump pump.

Transom

A small hinged window directly above a door.

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