Real Estate Glossary
Term Definitions
Amortization
The period of time required to reduce a debt to zero when payments
are made regularly. Amortization periods are most often 15, 20,
or 25 years long.
Anniversary
Most lenders allow borrowers to make a payment on the anniversary
of the mortgage. (For a mortgage assumed on June 1, a payment can
be made every subsequent June 1 for the term of the mortgage.) It
is applied against the principal and is a good way of reducing a
loan.
Appraisal
A process that determines the market value of a property.
Appraised Value
An estimated value of a property that is completed by a certified
appraiser for mortgage financing.
Approved Lender
A lending institution authorized by the Government of Canada to
make loans under the terms of the National Housing Act. Only Approved
Lenders can negotiate mortgages that require mortgage insurance.
Assumption
A legal document signed by a homebuyer that requires the buyer to
assume responsibility for the obligations of a mortgage by the builder
or original owner.
Balanced Market
Where demand for property equals the supply of available property.
Sellers usually accept reasonable offers and houses generally sell
in sufficient time periods. Prices remain stable and there is usually
a good number of homes to choose from.
Blended Payment
A mortgage payment that includes principal and interest. It is paid
regularly during the term of the mortgage. The payment total remains
the same, although the principal portion increases over time and
the interest portion decreases.
Building Permit
A certificate that must be obtained from the municipality by the
property owner or contractor before a building can be erected or
repaired. It must be posted in a conspicuous place until the job
is completed and passed as satisfactory by a municipal building
inspector.
Buyer's Market
When there is a higher number of homes to choose from than buyers
in comparison. Prices of homes tend to be lower and they remain
available for sale longer. Buyers usually have more leverage in
negotiating a purchase.
Closed Mortgage
A mortgage loan that has a locked-in payment schedule, which does
not vary over the life of the closed term. A buyer who uses a closed
mortgage will likely have to pay the lender a penalty if you fully
repay the loan before the end of the closed term.
Closing Costs
Costs, in addition to the purchase price of a home, such as legal
fees, transfer fees, and disbursements, that are payable on the
closing date. Closing costs typically range from 2%-4% of a home's
selling price.
Closing Date
The date on which the sale of a property becomes final and the new
owner takes possession.
CMHC
Canada Mortgage and Housing Corporation. A Crown corporation that
administers the National Housing Act for the federal government
and encourages the improvement of housing and living conditions
for all Canadians. CMHC also creates and sells mortgage loan insurance
products.
Collateral Mortgage
A mortgage that secures a loan by way of a promissory note. The
money borrowed can be used to buy a property or can be used for
another purpose, such as a home renovation or a vacation.
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/Conditions of Sale
An Offer to Purchase that is subject to specified conditions, for
example, the arranging of a mortgage. There is usually a stipulated
time limit within which the specified conditions must be met.
Conventional Mortgage
A mortgage loan up to a maximum of 75% of the lending value of the
property. Mortgage loan insurance is not required for this type
of mortgage.
Covenant
A clause in a legal document which, in the case of a mortgage, gives
the parties to the mortgage a right or an obligation. For example,
a covenant can impose the obligation on a borrower to make mortgage
payments in certain amounts on certain dates. A mortgage document
consists of covenants agreed to by the borrower and the lender.
Conveyancing
The transfer of ownership of any property or Real Estate from one
person to another.
Deed A legal document,
which is signed by both the vendor and the purchaser transferring
ownership. This document is registered as evidence of ownership.
Default Failure
to abide by the terms of a mortgage loan agreement. A failure to
make mortgage payments, defaulting on the loan, may give cause to
the mortgage holder to take legal action to possess (foreclose)
the mortgaged property.
Deposit
A sum of money placed in trust by the purchaser when an Offer to
Purchase is made. The Real Estate representative or lawyer holds
the sum until the sale is closed, and then it is paid to the vendor.
Discharge of Mortgage
A document signed by the lender and given to the borrower when a
mortgage loan has been repaid in full.
Down payment
The portion of the house price the buyer must pay up front from
personal resources, before securing a mortgage. It generally ranges
from 5%-25% of the purchase price.
Easement
A right acquired for access to or over, or for the use of, another
person's land for a specific purpose, such as a driveway or public
utilities.
Encumbrance
A registered claim for debt against a property, such as a mortgage.
Equity
The difference between the price for which a home could be sold
and the total debts registered against the home. Equity usually
increases as the outstanding principal of the mortgage is reduced
through regular payments. Market values and improvements to the
property also affect equity.
FHLI
First Home Loan Insurance - This is a CMHC product of particular
interest to people looking for their first home. It allows qualified
first-time buyers to purchase a home with as little as 5% down.
In these cases, CMHC will insure mortgages of up to 95% of the home's
purchase price or the market value of the property, whichever is
less. (Restrictions may apply. Contact your local lender.)
Foreclosure
A legal procedure in which the lender gets ownership of the property
if the borrower defaults on the mortgage loan.
Gross Debt Service Ratio
The percentage of the borrower's gross income that will be used
for monthly payments of principal, interest, taxes, heating costs,
and half of any condominium maintenance fees.
High-Ratio Mortgage/Insured Mortgage Loan
A mortgage loan in excess of 75% of the lending value of the property.
This type of mortgage must be insured - for example, by CMHC - against
payment default.
Holdback
An amount of money withheld by the lender during construction of
a house to ensure that construction is satisfactory at every stage.
A standard holdback is 10% of the total cost of the building project.
Interest
The cost of borrowing money for a given period of time. Interest
is usually paid to the lender in installments along with repayment
of the principal loan amount.
Interest Adjustment Date (IAD)
A date from which interest on the mortgage advanced is calculated
for regular payments. This date is usually one payment period before
regular mortgage payments begin. Interest due between the date the
mortgage is advanced and the IAD is due on closing.
Interest Rate
The rate at which you pay interest to the lender. For example, when
the mortgage balance is $100,000, and the interest rate is 6 per
cent, one single annual payment will include $6,000 interest. More
frequent payments will result in different amounts.
Lending Value
The purchase price or appraised value of a property, whichever is
less.
Loan-to-Value Ratio
The ratio of the loan to the lending value of a property expressed
as a percentage. For example, the loan-to-value ratio of a loan
for $25,000 on a home which costs $100,000 is 25%.
Lien (Mechanics)
A claim against a property for money owing. A lien may be filed
by a supplier or a subcontractor who has provided labour or materials
but has not been paid. A lien must be properly filed by a claimant.
It has a limited life, prescribed by statutes that vary from province
to province. If the lien holder takes action within the prescribed
time, the homeowner may be obliged to pay the amount claimed by
the lien holder. Alternatively, the lien holder may force a sale
of the property to pay off the debt.
Maturity Date
The last day of the term of the mortgage agreement. On this day
the mortgage loan must be paid in full or the agreement renewed.
Mortgage Security
for a loan to purchase property. It is the purchaser's personal
guarantee to repay the loan and a pledge of the property as security
for the loan.
Mortgage Life Insurance
Insurance to pay off your mortgage in full if you die. Many lenders
offer this insurance and add the premium to your mortgage payments.
However, you may want to compare rates for equivalent products from
an insurance broker.
Mortgage Loan Insurance
Insurance required by lenders for high-ratio mortgages (more than
75% of the purchase price). It is available from CMHC or a private
insurer for a cost of between 0.5% and 3% of the amount of the mortgage.
Mortgage Payment
A regularly scheduled payment that is blended to include both principal
and interest.
Mortgagee
The lender who provides the mortgage loan.
Mortgagor
The borrower who pledges the property as security for the loan.
Net Worth
A person's total financial worth, calculated by subtracting total
liabilities from assets.
NHA
Premium Insurance required by lenders for high-ratio mortgages (more
than 75% of the purchase price). It is available from CMHC or a
private insurer for a cost of between 0.5% and 3% of the amount
of the mortgage. The premium can be added to your mortgage loan
and paid off as part of your regular mortgage payments, or paid
off in a lump sum at the time of purchase to save interest charges
on the premium itself.
Offer to Purchase
A written contract setting out the terms under which the buyer agrees
to buy. If accepted by the seller, it forms a legally binding contract
subject to the terms and conditions stated in the document.
Open Mortgage
A type of mortgage loan where the borrower can make a partial or
full payment of the principal amount at any time, without penalty.
Option Agreement
A document stipulating that, in exchange for a deposit, a specified
individual is to be given the first chance to buy a property at
or within a specified period of time. An option holder who does
not buy at or within the specified period loses the deposit and
the agreement is cancelled.
P.I.T.
Principal, Interest, and Taxes - payments due on a regular basis
under the terms of a mortgage agreement. Generally, payments are
made monthly and include one-twelfth of the estimated annual municipal
and school taxes. Since these taxes change from year to year, this
section of the mortgage will change accordingly.
P.I.T.H.
Principal, Interest, Taxes, and Heating - costs used to calculate
the Gross Debt Service ratio (GDS).
Portability
An option available on a mortgage that enables the mortgagor to
take their current mortgage loan with them to another property without
penalty.
Pre-Approved Mortgage
When a lender approves the potential mortgagor for a specified amount,
based on how much money the lender is prepared to lend to the borrower.
This allows buyers to shop for homes that they already know they
can obtain financing for and not homes that are potentially too
expensive, or out of the borrowers means to finance.
Prepayment Privileges
Allows the borrower to make voluntary payments on the mortgage loan,
in addition to the regular, scheduled mortgage payments.
Principal
The amount of money borrowed.
Property Purchase or Land
Transfer Tax
A toll paid to the provincial and/or municipal government(s) for
transferring property to the buyer from the seller.
Realtor
A Real Estate representative who is a member of an organization
of persons engaged in the business of buying and selling Real Estate,
such as the Canadian Real Estate Association.
Refinance
To pay off a mortgage or other registered encumbrance and arrange
for a new mortgage, sometimes with a different lender.
Regular Mortgage
With this type of mortgage, you pay between 10% and 25% of the cost
of the home as a down payment. The remaining balance is the amount
of the mortgage loan required. A high-ratio mortgage requires mortgage
loan insurance. CMHC offers it for a premium of 0.5%-3% of the mortgage
amount. This fee can be added to your mortgage payments or paid
in full on closing.
Renewal
At the end of a mortgage term, the borrower re-negotiates the loan
for a new term.
Second Mortgage
An additional mortgage on a property that already has a mortgage.
Seller's Market
More buyers are looking for homes than there are homes for sale.
There is a smaller inventory of homes available for sale and many
buyers looking to purchase. House prices generally increase and
homes sell quickly.
Strata or Condominium Fee
A payment made by all owners of condominiums or townhouses within
a particular complex that is allocated to pay expenses such as maintenance,
repairs and management costs.
Statement of Adjustment
A balance sheet statement that indicates credits to the vendor -
for example, the purchase price - and any prepaid taxes and credits
to the buyer, such as the deposit, and the balance due on closing.
Survey
A document that illustrates the property boundaries and measurements,
specifies the location of buildings on the property, and indicates
any easements or encroachments.
Term
The length of time during which a mortgagor pays a specific interest
rate on the mortgage loan. The entire mortgage principal is usually
not paid off at the end of the term because the amortization period
is normally longer than the term.
Title (freehold or leasehold) Legal
possession.
A freehold title gives the holder ownership of land and buildings
for an indefinite period of time. A leasehold title gives the holder
a right to use and occupy land and buildings for a defined period
of time. In a leasehold arrangement, actual ownership of the land,
sometimes along with the buildings, remains with the landlord.
Total Debt Service Ratio (TDS)
The percentage of gross annual income required to cover all payments
for housing and all other debts, such as car payments.
Variable-rate Mortgage
A type of mortgage with fixed payments but fluctuating interest
rates. The change in current interest rates doesn't alter the amount
of the mortgage payment, but determines how much of each payment
is applied against the principal amount and how much goes to pay
interest to the lender.
Vendor Take-Back Mortgage
Mortgage financing arranged between the seller of the property and
the buyer. Often this type of loan is a second mortgage, which the
seller is willing to arrange at below market rates to allow the
buyer to purchase the house. Most of these arrangements are not
renewable or transferable to the next owner of the house.
Zoning Bylaws
Municipal or regional laws that specify or restrict land use.
