Real Estate Glossary

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    Acceleration Clause – A clause in your mortgage which allows the lender to demand payment of the outstanding loan balance for various reasons. The most common reasons for accelerating a loan are if the borrower defaults on the loan or transfers title to another individual without informing the lender.

    ALR – Agricultural Land Reserve – A provincial zone in which agriculture is recognized as the priority use, farming is encouraged and non-agricultural uses are controlled.

    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. A typical mortgage in Canada has a 5-year term with a 25-year amortization period. Maximum amortization period on all CMHC insured homes was reduced from 30 to 25 years in June 2012.

    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. Usually used by lenders in determining the amount of a mortgage.

    Appraised Value – An estimated value of a property that is completed by a certified appraiser for mortgage financing. Usually arranged by the mortgage provider.

    Appreciation – The increase of a property’s value over time.

    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.

    Assignment – When ownership of your mortgage is transferred from one company or individual to another, it is called an assignment.

    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.

    Associate Broker – An individual that holds a broker license and chooses to associate or affiliate with another sponsoring broker rather than opening their ow brokerage office.

    Average Home Price – The average price of a home calculated by adding all sold prices and dividing by the number of homes sold.

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    Balloon Mortgage – A mortgage loan that requires the remaining principal balance be paid at a specific point in time. For example, a loan may be amortized as if it would be paid over a thirty year period, but requires that at the end of the tenth year the entire remaining balance must be paid.

    Balloon Payment – The final lump sum payment that is due at the termination of a balloon mortgage.

    Basis Point – A unit equal to 1/100 of one per cent used to denote changes in bond yields and other interest rates. For example, a 25 basis point change in the Bank of Canada’s target overnight rate refers to an increase of 0.25 per cent.

    Balanced Market – Where demand for property equals the supply of available property. (sales to active listings ratio is in a 14 to 20 per cent range) Sellers usually accept reasonable offers and houses generally sell in sufficient time periods. Prices remain relatively stable and there is usually a good number of homes to choose from.

    Bank Of Canada Overnight Rate – The target level interest rate set by the Bank of Canada at which major financial institutions borrow and lend one-day (or “overnight”) funds among themselves.

    Benchmark Property – A property or home price against which other properties can be evaluated.

    Biweekly Mortgage – A mortgage in which you make payments every two weeks instead of once a month. The basic result is that instead of making twelve monthly payments during the year, you make thirteen. The extra payment reduces the principal, substantially reducing the time it takes to pay off a thirty year mortgage.

    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.

    Bridge Loan – bridge loans are obtained by those who have not yet sold their previous property, but must close on a purchase property. The bridge loan becomes the source of their funds for the down payment.

    Brokerage – A real estate company under which an individual is licensed.

    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.

    Buyers 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.

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    Capitalization or Cap Rate – The ratio between the net operating income produced by an asset and its capital cost (the original price paid to buy the asset) or alternatively its current market value.

    Carrying Costs – Financial and operational expense associated with an investment.

    Clear Title – A title that is free of liens or legal questions as to ownership of the property.

    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.

    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.

    Condo – Shared ownership in property. Owners have title (ownership) to individual units and a proportionate share in the common elements.

    Condo Fees – 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.

    Contingency – A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.

    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.

    Cooperative Co-op – A type of multiple ownership in which the residents of a multiunit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.

    Counter Offer – One party’s written response to the other party’s offer during negotiation of a real estate purchase between buyer and seller.

    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.

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    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 typically. 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.

    Downpayment – 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.

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    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.

    Executor – A person named in a will to administer an estate. The court will appoint an administrator if no executor is named.

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    Fair Market Value – The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.

    Fee Simple – the greatest possible interest a person can have in real estate.

    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.)

    Fixture – Personal property that becomes real property when attached in a permanent manner to real estate.

    Foreclosure – A legal procedure in which the lender gets ownership of the property if the borrower defaults on the mortgage loan. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.

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    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. A general rule is that your costs (mortgage payments, taxes, heating costs, and 50 per cent of condominium fees, if applicable) should not be more than 32 per cent of your gross monthly income.

    Grow Op – A marijuana-growing operation, usually located in a house.

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    High-Ratio Mortgage / Insured Mortgage Loan – A mortgage loan in excess of 80% of the lending value of the property. This type of mortgage must be insured by CMHC to protect the lender 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.

    Home Owners Warranty – A type of insurance often purchased by homebuyers that will cover repairs to certain items, such as heating or air conditioning, should they break down within the coverage period. The buyer often requests the seller to pay for this coverage as a condition of the sale, but either party can pay.

    Housing Starts – The number of privately owned new houses (technically housing units) on which construction has been started in a given period.

    HST- Harmonized Sales Tax – No longer applied. The HST was a value added tax that combined the Goods and Services Tax (GST) and the Property Sales Tax (PST), into one tax. As of April 2013, the 5% Federal GST and 7% provincial PST are collected separately again.

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    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.

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    Joint Tenancy – A form of ownership or taking title to property which means each party owns the whole property and that ownership is not separate. In the event of the death of one party, the survivor owns the property in its entirety.

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    Land Transfer tax – A toll paid to the provincial and/or municipal government(s) for transferring property to the buyer from the seller.

    Lending Value – The purchase price or appraised value of a property, whichever is less.

    Licensee – A managing broker, associate broker and/or representative of a brokerage. A licensee is not necesarily a REALTOR®

    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 – 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.

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    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.

    Median Home Price – The average price of a home calculated by adding all sold prices and dividing by the number of homes sold.

    Mortgage – A contract between a borrower and a lender. The borrower pledges a property as security to guarantee repayment of the mortgage debt. Lenders consider both the property (security) and the financial worth of the borrower (covenant) in deciding on a mortgage loan.

    Mortgagor – The borrower who pledges the property as security for the loan.

    Mortgage Broker – A person or company having contacts with financial institutions or individuals wishing to invest in mortgages.

    Mortgage Insurance – Government-backed or privately-backed insurance protecting the lender against the borrower’s default on high-ratio (and other types of) mortgages.

    Mortgage Insurer – In Canada, high-ratio mortgages (those representing greater than 80 per cent of the property value) must be insured against default by either Canada Mortgage and Housing Corporation (CMHC) or private insurers. The borrower must arrange and pay for the insurance, which protects the lender against default.

    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.

    Mortgage Prepayment Penalty – A fee paid by a borrower to the lender in exchange for being permitted to break a contract (a mortgage agreement); usually three months’ interest, but it can be a higher or it can be the equivalent of the loss of interest to the lender.

    Mortgage Term – The length of time a lender will loan mortgage funds to a borrower. Most mortgage terms run from six months to five years, after which the borrower can either repay the balance (remaining principal) of the mortgage, or renegotiate the mortgage for another term.

    MLS Multiple Listing Service – A co-operative selling system for relaying information to REALTORS® about properties for sale.

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    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.

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    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.

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    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. A pre-approval applies only to the borrower. Once a property is chosen, it must also meet the underwriting guidelines of the lender.

    Prepayment Privileges – Allows the borrower to make voluntary payments on the mortgage loan, in addition to the regular, scheduled mortgage payments.

    Prequalification – This usually refers to the loan officer’s written opinion of the ability of a borrower to qualify for a home loan, after the loan officer has made inquiries about debt, income, and savings. The information provided to the loan officer may have been presented verbally or in the form of documentation, and the loan officer may or may not have reviewed a credit report on the borrower.

    Prime Rate – The lowest rate of interest at which money may be borrowed commercially.

    Principal – The mortgage amount initially borrowed, or the portion still owing on the mortgage.

    Property Transfer Tax – A land registration tax paid to the provincial and/or municipal government(s) for transferring property to the buyer from the seller.

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    Rate (interest) – The return the lender receives for advancing the mortgage funds required by the borrower to purchase a property.

    Realtor – A trademark name for 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 usually at a lower rate.

    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.

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    Sales to Active Listings Ratio – A measure of balance between supply and demand in the housing market. It is calculated as the number of unit sales divided by the number of active listings.

    Seasonally Adjusted Annual Rate (SAAR) – A rate adjustment used for economic or business data that attempts to remove the seasonal variations in the data.

    Second Mortgage – An additional mortgage on a property that already has a mortgage.

    Seller’s Market – generally characterized by an excess of demand (more buyers)for homes over what is currently supplied by the market (active and new listings) When there is a smaller inventory of homes available for sale and many buyers looking to purchase, housing prices will generally increase and homes sell in less time. A sellers’ market typically occurs when the ratio of home sales to active listings is above 20 per cent.

    Strata Fees – 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 Adjustments – 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.

    Straight Loan – A non-amortizing mortgage under which the principal is paid in its entirety upon the maturity date. Sometimes called a straight loan. Sometimes called a Term Mortgage.

    Survey – A document that illustrates the property boundaries and measurements, specifies the location of buildings on the property, and indicates any easements or encroachments.

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    Tenancy in Common – As opposed to joint tenancy, when there are two or more individuals on title to a piece of property, this type of ownership does not pass ownership to the others in the event of death.

    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. Most mortgage terms run from six months to five years.

    Term Mortgage – A non-amortizing mortgage under which the principal is paid in its entirety upon the maturity date. Sometimes called a straight loan.

    Title Legal possession. (freehold or leasehold) – 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.

    Title Search – A detailed examination of the ownership documents to ensure there are no liens or other encumbrances on the property, and no questions regarding the seller’s ownership claim.

    Total Debt Service Rtio – The percentage of gross annual income required to cover all payments for housing and all other debts, such as car payments, and credit card servicing.

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    Unit – Term used to describe the individual home or apartment held by the owner within a condominium development.

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    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.

    Vender Take – Back 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.

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    Zoning Bylaws – Municipal or regional laws that specify or restrict land use.

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