Mortgages Glossary P

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Package Mortgage

Mortgage on a property, plus the appliances and furniture inside. For example, Ron wants to buy a new house for $200.000 and new furniture, but is short on cash. He may get a Package Mortgage for $220.000 which will pay both for the house and the furniture. Package mortgages have higher interest rates and stricter agreements.

Paneling

Wood (or other material) applied to the wall on top of the wall material.

Payment Frequency

The choice of recurring mortgage payments. You may choose to pay every month, every 2 weeks or every 1 week.

Parcel

Something wrapped up or packaged to be delivered. For example, you send a present to your relatives via Post Office. Post Office will package your present in a box and special wrapping, making it a parcel.

Partial Claim

When lender gives second mortgage on a property, it has partial claim on that property. For example, George has a mortgage. He lived in his house for long enough for the price to go up(equity). He then gets a home equity loan from another lender. That lender will have a Partial Claim on George’s property, meaning that if George cannot pay back for the mortgage (both 1st and 2nd), second lender has partial rights to George’s property.

Partial Payment

Payment that does not cover full monthly mortgage payment. Partial payment may be requested by the borrower at times of hardship. Not all borrowers allow partial payments.

Participating Broker

Broker participating in a mortgage transaction. If you hire a mortgage broker to get you a mortgage loan, that broker will become a participating broker.

Participation Financing

Loan given by two or more lenders.

Payment Change Date

In adjustable rate mortgage interest rates change every: 1 month, 2 months, 1 year, etc.. When changes take place, it is referred to as payment change date.

Partnership

Type of business ownership where 2 or more people own the company and are equally responsible for it.

Payment Holiday

Short break from mortgage payments, offered by some lenders on adjustable (flexible) rate mortgages.

Payment Adjustment Interval / Payment Adjustment Period

Period between rate changes on an adjustable (variable) rate mortgage.

Payment Cap / Payment Increase Cap

Limit on the interest rates for an adjustable rate mortgage. For example Ron has an adjustable rate mortgage starting at a rate of 6%, but with the cap of 8%. No matter the market, his interest rates will not go higher than 8%. Payment cap may also have a negative effect. For example it may block interest rates from going down, below a set limit.

Payment Decrease Cap

Payment decrease cap is a mortgage provision that blocks interest rates from going down below a set limit. In an adjustable rate mortgage interest rates change on regular basis. Payment decrease cap makes sure that the interest rates never go down below a set limit.

Payment Period

Period over which borrowers must pay their dues. Most common payment period is one month, but it can be 2 weeks and 1 week.

Payment Rate

Total monthly mortgage payment, including interest rates, taxes, insurance, points and other fees associated with a mortgage.

Payment shock

Refers to payment adjustments in an adjustable (variable) rate mortgage. At some point the adjustments may differ from previous payments so much that it shocks the borrower. Payment shock may also refer to first time buyers who are shocked at the difference of monthly payments for their own home versus rent.

Payoff Month

Month when the total loan balance is paid down to 0. It is the day you’re through with the mortgage.

Party Wall

Wall between two rooms belonging to different people. For example you own a condominium. You are sharing a wall with the neighbor in the next condominium, called party wall.

Passbook

Book used to record all banking transactions.

Passive Activity

Activity from which you can profit, that does not involve physical participation. For example, you rent a room. Person who rents your room pays you money, making you profits. This does not involve any labor on your part, making it a passive activity

Passive Loss

Loss from a passive activity. For example you own an apartment complex. Not enough people rent apartments there, creating business losses for you. You can also say – you’re experiencing passive losses.

Passive Activity: Activity from which you can profit, that does not involve physical participation. For example, you rent a room. Person who rents your room pays you money, making you profits. This does not involve any labor on your part, making it a passive activity

Payee

One who receives payment. When you get a cheque – you’re a payee.

Payroll Taxes

Taxes deducted from wages (hourly) and salaries (yearly). In Canada, every person earning hired income (wages, salary or commission) must pay payroll taxes.

PC Banking

Access of banking information via internet, from a personal computer(PC). PC Banking is very convenient since people can make changes to their accounts, view balances and pay bills from the comforts of their home.

Penalty

Money or other expenses paid for breaking or violating mortgage contract.

Penalty Rate

Rate at which borrower is charged for missing mortgage payments. If you miss two mortgage payments you may be charged higher interest rates on missed amount or a flat fee.

Pension Mortgage

Interest only mortgage, where principal is paid off by your pension fund. It is available only to self employed individuals.

Per-diem Interest

Interest rate charged daily. When you get a new mortgage, you’re not obliged to pay the first month. From the day you get the new mortgage to the first mortgage payment Per-diem Interest is applied, meaning that it adds interest every day, until you make first payment. Once the first payment is made, Per-diem Interest stops and you’re switched to regular, monthly interest rate calculations.

Per Item Charge

Fee charged on the bank account for exceeding the number of allowed transactions.

Pell Grant

Government program that gives money to students with highest grades. Money to either pay for university or to pay for existing student loan.

Percolation Test

Test that determines whether soil is suitable for installation of sewage systems.

Periodic Rate

Interest rate measured in specific period of time. For example interest rate calculation for one month is monthly period rate whereas daily rate calculation is daily period rate.

Periodic Rate Cap / Periodic Cap

This feature in an adjustable (variable) rate mortgage limits interest rate fluctuations from one adjustment to another. For example Ron has a variable rate mortgage that adjusts every month. He has a periodic rate cap of 0.5% His current interest rate is 6%. Next month rates will be going up due to market conditions, however periodic rate cap will limit the increase to 0.5%. If the rates will be going up the month after again, periodic rate will limit the increase to 0.5% once more, and so on.

Permanent Financing

Long term loan that pays for construction loan after project is completed. It is a long commitment loan as opposed to short term mortgage and is usually 10+ years. For example Ron built a new condominium. He borrowed $1.000.000 for construction from YYY bank. Since the condo is built, Ron must sell individual condominiums, but YYY bank is not interested in long term profits and wants the loan repaid. Ron finds another investor, which is XXX bank that pays $1.000.000 to previous lender and helps Ron with newly build condominiums.

Permanent Buydown / Pre-computed Loan / Prepaid Interest / Permanent Buy down / Permanent Buy-down

For borrowers who prefer to get over interest rate payments, lenders offer permanent interest rate buy down options. The way it works: borrowers simply pay big cash sum for the interest rate at the start of the loan and then pay monthly principal.

For example, Ron borrowed $100.000. He wants to get over interest rates so he decides to buy it down. He pays $20.000 to his lender right away, equivalent to what he would pay over time(example). Now his monthly payments do not have interest and he only pays for the principal(total amount borrowed).

Permits

Legal approval required for:

Construction of new building projects(houses, apartments)
Energy
Plumping
Electricity
Opening(once construction is finished)

Permits come in written form and may take up to two months to get. Permits require inspection and thorough check by governmentally approved inspectors.

Personal Consumption Spending / Personal Disposable Income

Money spent in certain area (city, town, province) by residents, on personal goods and services.

Personal Finance Manager

Computer program that lets people work with financial data from their personal computers.

Personal Identification Number (PIN)

Password required to access bank account. Personal Identification Number is selected by the account holder before opening an account. It can be changed any time at users preference.

Personal Loan

Refers to regular mortgage as opposed to commercial mortgage. Personal loan is used for private reasons, such as buying property to live in or for recreational purposes, whereby commercial loan finances property designed to make profits, like shopping malls, offices.

Personal Property

Property bought for personal reasons. For example to live in it or to have a vacation getaway. Commercial property on the other hand is designed to create some kind of profit.

Personal Property Taxes

Taxes on personal property such as houses, condominiums, townhouses.
Personal Property: Property bought for personal reasons.

Personal Savings

Money saved over time by an individual.

Personalized Cheque / Personalized Check

Cheque with preprinted name, address and account number.

Percentage Lease

Lease where on top of flat monthly fee, person(or business) pays a percentage of profits made from leased property.

Piggyback Loan / Piggyback Mortgage

Piggyback Loan is a mortgage designed for borrowers who cannot pay 20% down payment and want to avoid private mortgage insurance(PMI) Piggyback loan breaks down borrowed amount into two or more mortgages:

80% / 20%
80% / 10% / 10%
80% / 15% / 5%

Piggyback Loan represents smaller portion(15%, 20% etc). Interest rates are usually higher than on the original mortgage(80%).

Private Mortgage Insurance (PMI): Borrowers who provide less than 20% down payment are required to pay mortgage insurance. Mortgage insurance protects lenders in case borrower defaults (does not pay for the mortgage). Once borrower pays 20% of the mortgage, lenders are required by law to take mortgage insurance off. It is paid monthly by borrowers, not lenders.

Pipeline Risk

Term used by lenders to describe possible losses associated with locking down interest rates. For example, Ron wants to get a mortgage from YYY lender. As a measure to gain new customer, YYY lender locked interest rates for Ron for 60 days, giving Ron enough time to decide. During that time, interest rates may go up and lender would experience losses, referred to as Pipeline Risk.

PI / P.I.

Short for Principal and Interest – both components of a mortgage loan.

Principal: Principal is the total borrowed amount. It is also the amount that you owe to the lender without interest. For example you borrowed $300.000. Your principal is $300.000. If over 10 years you paid out $120.000, then your principal is $180.000.

Interest: Charge for the privilege of borrowing money, expressed as the percentage rate. For example, I borrow $1.000 from YYY bank. YYY bank will charge me 6% interest for the privilege of lending me money.

PIT / P.I.T.

Short for Principal, Interest and Taxes – components of a mortgage loan.

PITI / P.I.T.I.

Short for Principal, Interest, Taxes and Insurance – components of a mortgage loan.

Insurance(PMI or Private Mortgage Insurance): Borrowers who provide less than 20% down payment are required to pay mortgage insurance. Mortgage insurance protects lenders in case borrower defaults(does not pay for the mortgage). Once borrower pays 20% of the mortgage, lenders are required by law to take the mortgage insurance off. It is paid monthly by the borrowers, not lenders.

PITI Reserves / P.I.T.I. Reserves

Money that borrower must have after all closing costs are paid. PITI Reserves demonstrate lender that in case borrower encounters income problems, he can still pay for the mortgage. For example Ron got a new mortgage. Lender wants to see Ron's PITI Reserves, so in case he losses his job, he can still pay for the mortgage.

PITI:

Short for Principal, Interest, Taxes and Insurance – components of a mortgage loan.

Plat

Map that shows land broken down into individual land lots.

Point of Sale

Place where the sale takes place.

Portfolio

Investments, bonds, stocks, mutuals, securities held by an individual investor.

Portfolio Lender

Lender that does not sell loans on a secondary market. Lenders have the ability to sell your loans to other lenders, without notification. Terms are not usually affected by the sale.

Porting / Portable Loan / Portable Mortgage / Portability

Mortgage feature that allows you to transfer mortgage from one property to another

Possession

In real estate possession refers to ownership (or Title) of the property.

Potential Gross Rent

Income from renting an apartment complex or renting commercial property such as a shopping center, office building, etc.

Power of Attorney

When one party allows another person or company to act on their behalf.

Power of Sale

Mortgage feature that allows borrowers to sell their property in case they cannot afford to make mortgage payments.

Pre-Approval / Pre-qualification / Preapproval / Mortgage Pre-Approval

Evaluation of buyer's ability to repay the mortgage. Pre-Approval also determines the amount of money borrower is eligible for. For pre-approval lenders need to know:

Credit History/Score
Assets
Current Status(own/rent)
Past Loans
Employer
Number of Years Employed
Income
Type of property(house, condo, townhouse)
Martial Status

Pre-approval Letter / Preapproval Letter

Letter sent out by the lender to the borrower that specifies specific amount borrower is eligible for, interest rates and terms.

Pre-Authorized Payments

Monthly mortgage payments that are automatically withdrawn from personal bank account, with borrower’s approval.

Prearranged Refinancing Agreement

Agreement between borrower and lender, whereby borrower agrees to make future refinances with the same lender in return for special terms, such as reduction of interest rates, lower fees, etc.

Predatory Lending

A number of techniques designed to take advantage of borrowers. Predatory lenders generally rely on borrowers’ ignorance, limited knowledge of the mortgage market and in some case naivety. Predatory Lenders lure in unwary borrowers with low initial rates and too good to be true terms. One of the favorite is the abuse of escrow account, negative amortization.

Pre-foreclosure Sale

When lender allows borrower to sell the property instead of going into foreclosure.

Foreclosure: When borrower misses payments and fails to follow the contract, lender has a right to take away borrowers property and sell it, in order to cover the unpaid mortgage.

Pre-sold Home

House or a Condominium that is sold prior to the completion. Prices are lower than buying an already constructed property.

Prepaid Expenses / Prepaid Items / Pre-Paids

Mortgage costs such as insurance, points, taxes, appraisal and others, that are paid at the time of mortgage closing (final step before getting a mortgage).

Prepayment / Prepayment Clause / Prepayment Option

Feature that allows borrowers to pay loan balance before it is due. Some lenders apply penalties for prepayment, since they lose money on interest rates. Prepayment can be full or partial.

Prepayment Penalty

An agreement in a mortgage contract that does not allow borrowers to pay out their mortgage earlier than specified in a mortgage contract. If borrowers do pay it earlier, they face penalties.

Prepayment Plan

To understand prepayment plan you need to understand bi-weekly mortgage plan.

Bi-weekly mortgages are designed to shorten mortgage life. With biweekly mortgage, you pay half of your monthly payments every two weeks. The idea is the following.

There are 52 weeks in a 360 day year. Since biweekly mortgage is paid every two weeks, you will make 26 half payments in year. Twenty six weeks(26) equals to 13 months, meaning that with biweekly mortgage, you will make 13 months worth of payments in a calendar year.

This method allows reducing mortgage more quickly while paying less in interest.

Prepayment Plan is similar to the bi-weekly plan, the difference being payments go to third party instead of going directly to the lender. Third party collects your payments and pays it to the lender, but pays it by old monthly schedule. At the end of the year, the extra that is collected goes towards reduction of the principal.

Previous Balance

The amount owed at the beginning of a new billing cycle. Interest rates are charged to the total amount owed. For example, Ron borrowed owed $500 from his credit line. He then borrowed $600 more. When new billing cycle starts, interest rates will be calculated from a new balance, which is $1100.

Premium / Insurance Premium

Specified amount charged by insurance companies for providing insurance. For example, the amount you pay every month for the car insurance can be called premium.

Price-gouging

Overpriced product or service, because there is no other alternative to it. This may happen in a case company monopolize a marketplace or when product has no other match.

Primary Residence

Property where person lives most days in a year.

Prime Lending Rate / Prime Rate

Interest rates that banks charge to the most credit worthy customers. Those usually consist of large corporations.

Principal

Principal is the total borrowed amount. It is also the amount that you owe to the lender without interest. For example you borrowed $300.000. Your principal is $300.000. If over 10 years you paid out $120.000, then your principal is $180.000

Principal Limit

Maximum amount lender will give to a borrower.

Principle of Conformity / Principle of Progression

A belief that a house will reach the same price as other houses of the same size, style, footage, decoration, condition, located in the same neighborhood.

Principle of Regression

The assumption that a big expensive house will lose its value if its located near smaller, less expensive homes.

Probate Sale

The sale of a property upon death of its owner under court order. Court divides profits between heirs and creditors.

Processing

Steps taken by lenders during loan approval process. When borrower submits an application, lender looks at credit score, liabilities, assets, income, property and other details that will affect the mortgage. Once lenders approve or disapprove the application, loan processing is completed.

Processor

In a mortgage transaction processor is a mortgage broker(loan officer). It is the duty of processor to verify all required information, take care of documentation and pre-funding.

Production Home

Mass produced homes. Usually refereed to uniform houses(same looking) build throughout the development.

Pro Forma

Latin meaning - "according to form". It the financial statement that estimates projected figures.

Property Administrator

Person responsible for renewing and updating mortgaged property information. Property administrator is employed by lenders and mortgage brokers.

Property Flipping

Buying real estate and selling it for profit. For example buying under market price and quickly selling it for profit or buying property that needs repairs, repairing it and selling it for profits.

Property Grade

Physical condition of real estate property.

Property Line

Recorded boundary that sets property limits. For example, it is the agreed boundary that will separate my house backyard from my neighbor’s property.

Property Report

Summary outlining condition of an undeveloped property.

Property Tax / Property Taxes

Tax collected by local government (municipal), based on the value of the property including value of the land. Property tax finances road repairs, new schools, snow plowing and other services.

Property Tax Deduction

Tax expense that the federal government lets people deduct from their income before filing for taxes.

Property Value

Estimated market value of a real estate that the buyer is willing to pay. Property value may depend on market conditions, neighborhood, condition, etc.

Proprietary Lease

Agreement that allows a shareholder of the cooperative to occupy one of the apartments of a cooperative building.

Cooperative is a corporate owned building where residents buy shares in a corporation, giving them the ability to live in that building. Tenants are required to make monthly payments for maintenance, property and real estate taxes.

Prorate

Sharing of obligations between buyer and seller, such as insurance, taxes, bills and other recurring payments. For example property taxes were $850, which seller paid full year ahead on July the 1st.

He then sold the property to another person on November 15th. Since seller still lived on the property from July 1st to November 15th. 137 days, he will not get back the money paid in taxes for that period. However, since he paid ahead for the whole year, he must get a refund for the remaining amount of days left, which is 228 days, until the next billing cycle starts. Buyer must pay $530 to the seller for the 228 days of paid taxes. This also applies to insurance, water bills, hydro, etc.

Public Auction / Public Sale

Sale of the property to a highest bidder. Public is usually notified in advance by means of newspaper advertisements, online notifications, etc.

Purchase Agreement / Contract of Sale / Purchase Contract

Legal written agreement, where seller agrees to sell property and buyer agrees to buy it. This transfers assets from one person to another at agreed price.

Purchase-Money Mortgage / Money Purchase Mortgage

Refers to the mortgage that is used to buy the property. For example Ron wants to buy a house that costs $300.000. He has $50.000 for down payment and will take a mortgage for $250.000 in order to buy the house. The purchase-money mortgage is the mortgage borrowed to buy the house.

Purchase Option

Option given in a lease that lets a tenant purchase leased property.

Lease: Contract which allows use of an asset in exchange for fixed monthly payments. For example - office lease. Instead of buying an office building, I and the owner can go into a lease, where I will be paying for using his office building, for a long period of time (2-5 years). You can take an analogy of long term rent.

Purchase Price

Amount of money paid for real estate property.