Real Estate Glossary: P
May 21, 2008Payment Adjustment Period
The time period where payments on an adjustable-rate mortgage (ARM) may fluctuate.
Payment Cap
A contractual limitation on the amount of the monthly payment of an adjustable-rate mortgage or other variable rate loan.
Penalty
In mortgage terms, a penalty is a set rate or length of time the penalty will be charged based on the remaining loan amount. The penalty is usually three months interest or interest rate differential.
Penalty Rate
A rate charged to a borrower after he or she makes two late payments. The rate is generally several percentage points higher than the card’s current annual percentage rate. With some cards, a single late payment triggers the penalty rate.
Per-diem Interest
Interest that is charged daily which usually refers to the partial month’s interest that the buyer pays on the mortgage covering the period from the day of closing to the end of the month.
Periodic Rate
The interest rate in relation to a specific amount of time. For example, the monthly periodic rate is the cost of credit per month whereas the daily periodic rate is the cost of credit per day.
Periodic Rate Cap
In an adjustable-rate mortgage (ARM), this limit restricts how much an interest rate can fluctuate from one adjustment period to the next.
Personal Disposable Income
Personal income that is left after subtracting personal income tax payments. Also called “take-home pay.”
Possession
1. In real estate, the term refers to the direct occupancy, use, or control of a property after signing all of the papers at closing and receiving the keys to the house. 2. Something that is owned.
Power of Attorney
When one party authorizes another party to act on his or her behalf in business dealings. For example, someone with power of attorney can sign cheques or other legal documents for the person who gave authorization. A written document is required to prove that power of attorney has been granted.
Power of Sale
If loan default occurs, the mortgagee has the right to force the sale of the property without judicial proceedings.
Pre-Approval
A process used by mortgage lenders to determine the loan amount they would give to a potential buyer based on an extensive review of the buyer’s credit history. Lenders issue pre-approval letters to strengthen a buyer’s position when bidding on a home, because it instills confidence in a seller that the buyer is able to obtain the money needed to purchase the property.
Pre-approval Letter
A written document that details how much a lender will give a potential home buyer based on the current interest rates and the buyer’s credit history. The letter is issued by a lender or a mortgage broker and is used to instill confidence in a seller because it verifies that the buyer can obtain the funds needed for the transaction.
Pre-qualification
An informal process where a lender gives an estimate of how much a person can borrow to purchase a property. This estimate is based entirely on financial information provided by the potential borrower. Pre-qualification is not the same as pre-approval because it is not legally binding or even accurate since the person’s financial information is not verified.
Pre-sold Home
A house that is sold prior to construction as opposed to a house built on spec.
Prepaid Expenses
Recurring costs such as taxes, insurance, and interest that are paid at the time of closing. However, these costs cannot be financed. Also known as prepaid items or prepaids.
Prepaid Interest
Interest that is paid before it is due to save the borrower money on taxes.
Prepayment
Paying on the balance of a loan before it is due. Mortgage prepayments decrease the total amount of interest paid over the life of the mortgage. Penalties may or may not apply.
Prime Lending Rate
The rate of interest charged to credit worthy bank client for loans offered by chartered banks.
Prime Rate
The rate suggested by the Bank of Canada on which most banks base their prime mortgage lending rate.
Principal
In mortgage terms, principal is the original balance of loaned money on an outstanding loan and fees, excluding interest. Also the remaining balance of a loan, excluding interest.
Principal and Interest
The interest owed on a loan and the amount paid towards the principal make up the monthly loan payment amount.
Principle of Conformity
The belief that a dwelling will draw a fair market price if it is located with similar dwellings of the same size, style, and condition.
Principle of Progression
The belief that the value of a smaller dwelling will increase if it is located among larger and more expensive dwellings.
Principle of Regression
The belief that a larger and more expensive dwelling will lose value if it is located near smaller low-priced dwellings.
Probate Sale
A court supervised property sale that occurs after the owner passes away. Profits from the sale are divided among creditors and heirs as determined by the court.
Production Home
Homes that are mass produced as part of housing developments.
Professional liability insurance
Professional liability insurance is taken out by real estate brokers to protect themselves against the financial consequences of any fault, error, negligence or omission which their representatives or themselves could be responsible for in the course of their activities.
Promise to purchase
Undertaking by a person to purchase an immovable under certain conditions set by that person. Contract through which the seller agrees to sell the immovable once he has accepted the promise to purchase.
Property Report
1. A legal document prepared by a surveyor that shows the locations of all visible public and private improvements relative to property boundaries.
2. A legal disclosure that developers of timeshare properties are required to give to prospective buyers.
Property Tax
A levy or tax imposed by a municipality on real estate and personal property. The amount of tax varies depending on the property value.
Property Taxes
Taxes that are paid by the owner of real property which are based on the property’s value.
Property Value
The worth or amount of money a real property is sold for depending on the price negotiated by a buyer and seller.
Provision for Credit Losses
The amount deducted from income that is equal to the amount a bank adjusts its loan balances to reflect anticipated losses on the loans.
Purchase Agreement
A written contract between the buyer and seller of a property that states the buyer’s intention to pay a specific amount for the property by a certain date. The buyer and seller must both sign the agreement if and when the offer is accepted. Also called a purchase contract.
Purchase Option
1. In real estate, an agreement where a portion of monthly rent can be credited toward the eventual purchase of the property.
2. The portion of a vehicle lease that determines how much a lessee pays the lessor at the end of the lease to buy the vehicle. The price is usually the residual value.
Purchase Price
In real estate, purchase price refers to the total selling price of a property which includes the down payment and the principal on the loan.
I am having dome trouble understanding prepayment penalties. I read
I am having dome trouble understanding prepayment penalties. I read an article on prepayment penalties that was pretty helpful, but I dont understand the statement that you made above:
“Mortgage prepayments decrease the total amount of interest paid over the life of the mortgage. Penalties may or may not apply.”
Can you explain please
Statement: Mortgage prepayments decrease the total amount of interest paid
Statement: Mortgage prepayments decrease the total amount of interest paid over the life of the mortgage.
Explanation: Mortgage Pre-payments are additional/extra amount of money a borrower can pay on top of the regular monthly payments. This additional/extra amount of money applies directly to the principal of the mortgage loan. Therefore, the outstanding balance of the mortgage decreases faster. In other words, the less money is owed to the bank the less interest is being paid to the bank.
Statement: Penalties may or may not apply.
Explanation: There is an open mortgage loan and closed mortgage loan. The open mortgage has no pre-payment limits and can be completely paid off anytime without penalties. The closed mortgage has limits depending on the contract a borrower signs with a financial institution. Make sure you ask your mortgage specialist about the limits of the pre-payment options before singing the mortgage contract.