Real Estate Glossary

 

Amortization     

The period of time it takes to reduce a debt to zero when payments are made regularly. Amortization periods are commonly 15, 20, or 25 years long.

 

Appraisal            

A process that helps determines the value of a property.

 

Appraised Value              

An estimated value of a property that is completed by a certified appraiser.

 

Approved Lender           

A lending institution authorized by the Canadian Government to make loans under the terms of the National Housing Act. Only Approved Lenders can provide mortgages that require mortgage insurance.

 

Balanced Market             

Where demand for real estate equals the supply of available property. 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 and is paid regularly during the term of the mortgage. The payment total remains the same, although the interest portion of the payment decreases over time and the principal portion increases.

 

Building Permit

A certificate that must be obtained from the City of Port Alberni or Alberni-Clayoquot Regional District 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 building inspector.

 

Buyer's Market

When there are a higher number of homes to choose from than people interested in buying. 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 time. A buyer who uses a closed mortgage will likely have to pay the lender a penalty if they fully repay the loan before the end of the closed term.

 

Closing Costs     

Costs, in addition to the purchase price of the property, such as legal fees, transfer fees, and disbursements, that are payable on the closing date.

 

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 sells mortgage loan insurance products.

 

Commitment Letter / Mortgage Approval           

Written notification from the mortgage lender to the borrower that approves the lending of a certain amount of mortgage funds under specified conditions.

 

Conditional Offer / Conditions of Sale    

An Contract of Purchase and Sale that is subject to specified conditions, for example, the arranging of financing. There is a stipulated time limit within which the specified conditions must be met.

 

Contract of Purchase and Sale   

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.

 

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 written agreement or promise made under seal between two or more parties especially for the performance of some action. 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 home or property from one person to another.

 

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 repossess (foreclose) the mortgaged property.

 

Deposit               

A sum of money placed in trust by the purchaser when a Contract of Purchase and Sale is entered into. The real estate agent’s brokerage usually 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 part of the house’s sale price the buyer must pay up front from personal resources, before securing a mortgage. It commonly 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.  For example, a mortgage.

 

Equity  

The difference between the fair market value of a home and the total debts registered against the home. Equity usually increases as the outstanding principal of the mortgage is reduced through regular payments.

 

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 strata 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 or Genworth - 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 typical holdback is 10% of the total cost of the building project.

 

Interest               

The cost of borrowing money. Interest is usually paid to the lender in installments along with repayment of the principal loan amount.

 

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.

 

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.

 

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 $45,000 on a home which costs $100,000 is 45%.

 

Lien (Mechanics)             

A claim against real estate 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.

 

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 mortgage agreement renewed.

 

Mortgage           

A legal agreement in which a person borrows money to buy property (such as a house) and pays back the money over a period of years. 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.

 

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.

 

Mortgage Payment        

A regularly scheduled payment that is often 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. 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.

 

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.

 

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 some mortgages 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 can serve as a negotiating tool.

 

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.

 

REALTOR®          

A trademark name for a real estate agent 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. 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 first 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 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(s)     

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 upon closing.

 

Survey 

A document that illustrates the property boundaries and measurements, specifies the location of buildings on the property, and/or 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.

 

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.

 

Vendor Take-Back Mortgage     

Mortgage financing arranged between the seller of the property and the buyer. Most of these arrangements are not renewable or transferable to the next owner of the house.