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Definitions .docx

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McMaster University
Tony Belsito

Depreciation The loss in the value of an asset such as an automobile that occurs over its period of ownership; calculated as the difference between the price initially paid and the subsequent sale price. Sales Contract An agreement to purchase an automobile that states the offering price and all conditions of the offer; when signed by the buyer and the seller, the contract legally binds them to its terms. Lease An arrangement in which the lessee receives the use of the car (or other asset) in exchange for making monthly lease payments over a specified period. Closed-end Lease The most popular form of automobile lease, often called a ‘walk-away’ lease because at the end of its term the lessee simply turns in the car, assuming the preset mileage limit has not been exceeded and the car hasn’t been abused. Open-end Lease An automobile lease under which the estimated residual value of the car is used to determine lease payments, if the car is actually worth less than this value at the end of the lease, the lessee must pay the difference. Residual Value  The remaining value of a leased car at the end of the lease term. Capitalized Cost The price of a car that is being leased. Purchase Option A price specified in a lease at which the lessee can buy the car at the end of the lease term. Condominium (condo) A form of direct ownership of an individual unit in a multiunit project in which lobbies, swimming pools, and other common areas and facilities are jointly owned by all property owners in the project. Cooperative Apartment (co-op)  An apartment in a building in which each tenant owns a share of the corporation that owns the building. Rental Contract (lease agreement)  A legal instrument that protects both the lessor and the lessee from an adverse action by the other party; it specifies the amount of the monthly payment, the due date, penalties for late payment, the length of the lease agreement, deposit requirements, fair wear and tear definitions and provisions, the distribution of expenses, renewal options and early termination penalties, and any restrictions on children, pets, subleasing or using the facilities. Down Payment  A portion of the full purchase price provided by the purchaser when a house or other major asset is purchased; often called equity. Loan-to-value Ratio  The maximum percentage of the value of a property that the lender is willing to loan. Mortgage Loan Insurance  An insurance policy that protects the mortgage lender from loss in the event the borrower defaults on the loan: It is required by federally-regulated lenders when the down payment is less than 25 percent of the purchase price of the home. Its intent is to encourage loans to home-buyers who have very little money available for a down payment and closing costs. Closing costs  All expenses that borrowers ordinarily pay at the time a mortgage loan is closed and title to the purchased property is conveyed to them. Gross debt service (GDS) ratio  The ratio of the borrower’s monthly housing costs (mortgage payments, heating costs, and taxes) to their monthly gross income. Total debt service (TDS) ratio  The ratio of the borrower’s total debt service costs (housing costs plus other debt service) to their monthly gross income. Property taxes  Taxes levied by local gover
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