REAL ESTATE GLOSSARY
Welcome to my comprehensive real estate glossary, designed to demystify the terminology commonly encountered in the dynamic world of real estate. Whether you're a seasoned investor, a first-time homebuyer, or simply seeking to expand your knowledge of the industry, my glossary is your go-to resource for understanding key concepts and terms.
A to E
A
Agreement Of Purchase And Sale
The legal contract between a purchaser and a seller. A professional REALTOR® has the knowledge and experience to best protect you with the most suitable clauses and conditions.
Amortization Period
The number of years it takes to repay the entire amount of the financing based on a set of fixed payments.
Appraisal
The process of determining the market value of a property.
Appreciation
The increase in value of something because it is worth more now than when you bought it.
Assets
What you own or can call upon. Often used in determining net worth or in securing financing.
Assumption Agreement
A legal document signed by a buyer that requires the buyer to assume responsibility for the obligations of an existing mortgage. If someone assumes your mortgage, make sure that you get a release from the mortgage company to ensure that you are no longer liable for the debt.
B
Blended Payments
Equal payments consisting of both an interest and a principal component. Typically, while the payment amount does not change, the principal portion increases, while the interest portion decreases.
C
Canada Mortgage And Housing Corporation (CMHC)
CMHC is a federal Crown corporation that administers the National Housing Act (NHA). Among other services, they also insure mortgages for lenders that are greater than 80% of the purchase price or value of the home. The cost of that insurance is paid for by the borrower and is generally added to the mortgage amount. These mortgages are often referred to as 'Hi-Ratio' mortgages.
Carriage House
A carriage, or link home, is joined by a garage or carport.
Closed Mortgages
A mortgage that cannot be prepaid or renegotiated for a set period of time without penalties.
Closing Costs
Costs in addition to the purchase price of the home, such as legal fees, transfer fees and disbursements, that are payable on closing day. They range from 1.5% to 4% of a home’s selling price.
Closing Date
The date on which the new owner takes possession of the property and the sale becomes final.
Collateral
An asset, such as term of deposit, Canada Savings Bond, or automobile, that you offer as security for a loan.
Commitment Letter (Mortgage Approval)
Written notification from the mortgage lender to the borrower that approves the advancement of a specified amount of mortgage funds under specified conditions.
Conditional Offer
An Offer to Purchase that is subject to specified conditions, for example, the arrangement of a mortgage. There is usually a stipulated time limit within which the specified conditions must be met.
Condominium (or Strata)
You own the unit you live in (eg: highrise or lowrise, or a townhouse) and share ownership rights for the common areas of the building along with the development’s other owners.
Conventional Mortgage
A mortgage up to 80% of the purchase price or the value of the property. A mortgage exceeding 80% is referred to as a 'Hi-Ratio' mortgage and the lender will require insurance for that mortgage.
Counteroffer
If, for example, your original offer to the vendor is not accepted, the vendor may counteroffer. This means that the vendor has amended something from your original offer, such as the price or closing date. As this new offer varies the terms of the original offer, this rejects the original offer. If a counteroffer is presented, the individual has a specified amount of time to accept or reject.
Credit Score
A system that assesses a borrower on a number of items, assigning points that are used to determine the borrower's credit worthiness.
Curb Appeal
How attractive the home looks from the street. A home with good curb appeal will have attractive landscaping and a well-maintained exterior.
D
Deed
A legal document that transfers ownership in the real property to the purchaser. This is often called a “Transfer. This document is registered as evidence of ownership.
Default
Failure to make a mortgage payment in accordance with the mortgage document.
Demand Loan
A loan where the balance must be repaid upon request.
Deposit
A sum of money deposited in trust by the purchaser on making an offer to purchase. When the offer is accepted by the vendor (seller), the deposit is held in trust by the listing real estate broker, lawyer, or notary until the closing of the sale, at which point it is given to the vendor. If a house does not close because of the purchaser's failure to comply with the terms set out in the offer, the purchaser forgoes the deposit, and it is given to the vendor as compensation for the breaking of the contract (the offer).
Depreciation
The decrease in value of something because it is now worth less than when you bought it.
Downpayment
The portion of the home price that is not financed by the mortgage loan. The buyer must pay the down payment from his/her own funds or other eligible sources before securing a mortgage.
Duplex
A duplex is a building containing two single-family homes, both sides sharing the same title.
E
Easement
An interest in land owned by another person that benefits the person who has the easement, for a specific limited purpose (i.e. right of way permitting passage over a particular strip of land) such as with public utilities.
Equity
The difference between the market value of the property and any outstanding mortgages registered against the property. This difference belongs to the owner of that property.
Estoppel Certificate
Also called a certificate of status, it is a certificate that outlines a condominium corporation’s financial and legal state.
F to M
F
First Mortgage
A debt registered against a property that has first call on that property.
Fixed-rate Mortgage
A mortgage for which the interest is set for the term of the mortgage.
Foreclosure
A legal process where the lender takes possession of your property and sells it to cover the unpaid debt.
Freehold
A freehold title is an interest in land that gives the holder full and exclusive ownership of the land and building for an indefinite period. A leasehold title is an interest in land that gives the holder the right to use and occupy the land and building for a defined period.
G
Gross Debt Service (GDS) Ratio
It is one of the mathematical calculations used by the lenders to determine a borrower's capacity to repay a mortgage. It takes into account the mortgage payments, property taxes, approximate heating costs, and 50% of any maintenance fees, and this sum is then divided by the gross income of the applicants. Ratios up to 32% are acceptable.
Guarantor
A person with an established credit rating and sufficient earnings who guarantees to repay the loan for the borrower if the borrower does not.
H
High-ratio Mortgage
A mortgage that exceeds 80% of the purchase price or appraised value of the property. This type of mortgage must be insured. To avoid the cost of the insurance, a 1st mortgage up to 80% is arranged and a 2nd mortgage for the balance (up to 90% of the purchase price).
Home Inspector
A person who visually inspects a home to tell you if something is not working properly, or is unsafe. He or she will also tell you if repairs are needed, and maybe even where there were problems in the past.
I
Interest Adjustment Date (IAD)
The date on which the mortgage terms will begin. This date is usually the first date of the month following the closing. The interest cost for those days from the closing date to the first of the month are usually paid at closing. That is why it is always better to close your deal towards the end of the month.
Interest-only Mortgage
A mortgage on which only the monthly interest cost is paid each month. The full principal remains outstanding. The payment is lower than an amortized mortgage since one is not paying any principal.
M
Manufactured Home
A factory-built, single-family home. It is transported to a chosen location, and placed onto a foundation.
Maturity Date
The last day of the term of the mortgage. On this day, the mortgage loan must either be paid in full or the agreement renewed.
Modular Home
A factory-built, single-family home. The home is typically shipped to a location in two, or more, sections (or modules)
Mortgage
A mortgage is a loan that uses a piece of the real estate as a security. Once that loan is paid-off, the lender provides a discharge for that mortgage.
Mortgage Life Insurance
Mortgage life insurance gives coverage for your family, if you die before your mortgage is paid off.
Mortgage Loan Insurance
Mortgage loan insurance is required for residential mortgage loans with a loan-to-value ratio of more than 80%, and is available from CMHC or a private company. Because mortgage loan insurance protects the lender against losses in the event that a borrower fails to pay his or her mortgage, it enables more Canadians to purchase their home earlier, at competitive interst rates and benefit from the growth in home equity sooner.
Mortgagee
The financial institution or person (lender) who is lending the mortgage.
Mortgagor
The person who borrows the money using a mortgage.
MLS - Multiple Listing Service
A multiple listing service that contains descriptions of most of the homes that are for sale. This computer-based service is used to keep up with properties that are listed for sale.
N to Z
N
Net Worth
Your financial worth, calculated by subtracting your total liabilities from your total assets.
New Home Warranty
Coverage in the event that an item under the warranty needs to be repaired within the specific warranty period. The repair will be made by the organization that provided the warranty.
O
Offer To Purchase
A written contract setting out the terms under which the buyer agrees to buy the home. If the Offer to Purchase is accepted by the seller, it forms a legally binding contract that binds the people who signed to certain terms and conditions.
Open House
A period of time during which a house or apartment for sale or rent is held open for public viewing.
Open Mortgage
A mortgage that can be repaid at any time during the term without any penalty. For this convenience, the interest rate is between 0.75-1.00% higher than a closed mortgage. A good option if you are planning to sell your property or pay-off the mortgage entirely.
Operating Costs
The expenses that a homeowner has each month to operate a home. These include property taxes, property insurance, utilities, telephone and communications charges, maintenance and repairs.
P
Payment Schedule
The monthly, biweekly, or weekly mortgage payments.
Principal
The amount that you borrow for a loan (not including interest).
P.I.T.
Principal, interest, and property tax due on a mortgage. If your down payment is greater than 25% of the purchase price or appraised value, the lender will allow you to make your own property tax payments.
Portable Mortgage
An existing mortgage that can be transferred to a new property. One would want to port their mortgage in order to avoid any penalties, or if the interest rate is much lower than the current rates.
Prepayment Penalty
A fee charged a borrower by the lender when the borrower prepays all or part of a mortgage over and above the amount agreed upon. Although there is no law as to how a lender can charge you the penalty, a usual charge is the greater of the Interest Rate Differential (IRD) or 3 months interest.
Prime
The lowest rate a financial institution charges its best customers.
Principal
The original amount of a loan, before interest.
Property Insurance
Insurance that you buy for the building(s) on the land you own. This insurance should be high enough to pay for the building to be re-built if it is destroyed by fire or other hazards listed in the policy.
Property Taxes
Taxes charged by the municipality where the home is located, usually based on the value of the home. In some cases the lender will collect a monthly amount as part of the mortgage payment to cover your property taxes, which is then paid by the lender to the municipality on your behalf.
R
Rate Commitment
The number of days the lender will guarantee the mortgage rate on a mortgage approval. This can vary lender to lender anywhere from 30 to 120 days.
Renewal
When the mortgage term has concluded, your mortgage is up for renewal. It is open at this time for prepayment in part or in full, then renew with the same lender or transfer to another lender at no cost.
Reserve Fund
A fund required to be set up by the condominium corporation for major repair and replacement of common elements and assets of a corporation. This amount is set aside by the homeowner on a regular basis so that funds are available for emergency or major repairs.
Row House
Also called a townhouse, a row house is one unit of several similar single-family homes, side-by-side, joined by common walls.
S
Second Mortgage
A debt registered against a property that is secured by a second charge on the property.
Security
Property that is pledged to guarantee the fulfillment of an obligation and that can be claimed by a creditor if a loan is not repaid.
Semi-Detached Home
Home for one family, attached to another building on one side.
Surveyor's Certificate
A document that shows property boundaries and measurements specifies the location of buildings, fences, and other improvements on the property and states easements or encroachments, at a specific point in time.
Switch
To transfer an existing mortgage from one financial institution to another.
T
Term
The period of time that the financing agreement covers. The terms available are: 6 month,1,2,3,4,5,6,7,10 year terms, and the interest rates will be fixed for whatever term one chooses.
Title
A freehold title is an interest in land that gives the holder full and exclusive ownership of the land and building for an indefinite period. A leasehold title is an interest in land that gives the holder the right to use and occupy the land and building for a defined period.
Title Insurance
Insurance against loss or damage arising from a matter affecting the title to real property (e.g.: by a defect in the title or by the existence of a lien, encumbrance or servitude).
Total Debt Service (TDS) Ratio
It is the other mathematical calculations used by lenders to determine a borrower's capacity to repay a mortgage. It takes into account the mortgage payments, property taxes, approximate heating costs, and 50% of any maintenance fees, and any other monthly obligations (i.e. personal loans, car payments, lines of credit, credit cards debts, other mortgages, etc.), and this sum is then divided by the gross income of the applicants. Ratios up to 40% are acceptable.
Townhouse
Also called a row house, a townhouse is one unit of several similar single-family homes, side-by-side, joined by common walls.
V
Variable Rate Mortgage
A mortgage for which the interest rate fluctuates based on changes in prime.
Vendor
The seller of a property.
Vendor Take Back (VTB) Mortgage
A mortgage provided by the vendor (seller) to the buyer.
