IMPORTANT TERMS USED IN REAL ESTATE TRANSACTIONS
Adjustment Date - The day from which all calculations of interest, tax adjustments, utility bill adjustments (if applicable) are made to the credit of either the buyer or the seller. This is usually (but not always) the same as the possession date.
Amortization - The number of years it takes to repay the entire amount of a mortgage. Amortization periods are most often 15, 20, or 25 years long.
Appraisal - An estimate of a property's market value, used by lenders in determining the amount of the mortgage.
Appreciation - The increase of a property's value over time.
Assessment - The value of a property, set by the local municipality, for purposes of calculating property tax.
Assumable Mortgage - A mortgage held on a property by the seller that can be taken over by the buyer, who then accepts responsibility for making the mortgage payments.
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 Mortgage - A combination of two mortgages, one with a higher interest rate than the other, to create a new mortgage with an interest rate somewhere between the two original rates.
Blended Mortgage Payments - Equal or regular mortgage payments, consisting of both a principal and an interest component. With each successive payment, the amount applied to interest decreases and the amount applied to principal increases, although the total payment doesn't change.
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.
Buy-Down - When the seller reduces the interest rate on a mortgage by paying the difference between the reduced rate and market rate directly to the lender, or to the purchaser, in one lump sum or monthly installments.
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 that cannot be prepaid, renegotiated or refinanced during its term.
Closing - The real estate transaction's completion, when the parties involved agree that all legal and financial obligations have been met, and the deed to the property is transferred from the seller to the buyer.
Closing Costs - Expenses in addition to the purchase price for buying and selling a property.
Closing Date - The date on which the title is transferred from the seller to the buyer, and the money is paid. Also known as "Completion Date".
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.
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.
Common Elements - The portions of a condominium development owned in common (shared) by the unit owners.
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.
Condominium - Shared ownership in property. Owners have title (ownership) to individual units and a proportionate share in the common elements.
Conventional Mortgage - A first mortgage issued for up to 75% of the property's appraised value or purchase price, whichever is lower.
Conveyance - The term used to describe the process of transferring the seller's title to the buyer and indicates all the necessary steps to complete the transfer. A conveyancing lawyer is a lawyer (or notary) responsible for the conveyance process (this is normally the buyer's lawyer).
Counteroffer - One party's written response to the other party's offer during negotiation of a real estate purchase between buyer and seller.
Debt Service Ratio - The percentage of a borrower's income that can be used for housing costs. Gross Debt Service (GDS) Ratio is the amount that a lender will permit a borrower to use from his/her gross income in order to qualify for a loan for housing costs, including mortgage payment and taxes (and condominium fees, when applicable).Total Debt Service (TDS) Ratio is the maximum percentage of a borrower's income that a lender will consider for all debt repayment (other loans and credit cards, etc.) including a mortgage.
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.
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 legal right to use or cross (right-of-way) another person's land for limited purposes. A common example is a utility company's right to run wires or lay pipe across a property.
Encroachment - An intrusion onto an adjoining property. A neighbour's fence, storage shed, or overhanging roof line that partially (or even fully) intrude onto your property are examples of encroachment.
Equity - The difference between a property's purchase price and the amount financed.
Estoppel Certificate - A written statement of a condominium unit's current financial and legal status.
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.)
First Mortgage - The first security registered on a property. Additional mortgages secured against the property are "secondary" to the first mortgage.
Foreclosure - A legal process by which the lender takes possession and ownership of a property when the borrower doesn't meet ("defaults on") the mortgage obligation.
High-Ratio Mortgage - A mortgage that exceeds 75 per cent of the loan-to-value ratio; must be insured by either the Canada Mortgage and Housing Corporation (CMHC) or a private insurer to protect the lender against default by the borrower who has less equity invested in the property. Interest - The cost of borrowing money.
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.
Joint Tenancy - A form of ownership in which two or more individuals (often spouses) have an equal share in the ownership of a property. In the event of one owner's death, his or her share is automatically transferred to the surviving owner(s), apart from the deceased's will.
Lien - Any legal claim against a property, filed to ensure payment of a debt.
Listing Agreement - The contract between the listing broker and an owner, authorizing the Realtor or facilitate the sale or lease of a property.
Listing Broker - The Realtor who signs a contract with an owner to sell the property.
Maintenance Fee - A monthly fee paid by condominium owners for maintaining the development's common areas.
Mortgage - A contract between a borrower and a lender. The borrower pledges a property as security to guarantee repayment of the mortgage debt.
Mortgage Broker - A licensed individual who, for a fee, brings together a borrower in search of a mortgage and a lender willing to issue that mortgage.
Mortgagee - The lender.
Mortgage Insurance - Government-backed or private-backed insurance protecting the lender against the borrower's default on high-ratio (and other types) of mortgages.
Mortgage Prepayment Penalty - Is a fee paid by the 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.
Mortgagor - The person who gives a mortgage in return for money to be repaid, for example: "we became mortgagors when the bank accepted our mortgage and loaned us the money to buy our new home".
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 mortgage that can be prepaid or renegotiated at any time and in any amount, without penalty Possession Date - The date the Buyer will take possession of and receive keys to the property, and can be different from the closing date.
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.
Principal - The mortgage amount initially borrowed or the portion still owing on the mortgage. Interest is calculated on the principal amount.
Property Disclosure Statement - This form enables sellers to disclose known defects. If the seller decides not to complete the form and does not disclose known defects, he or she can still be held held liable. The form also serves as a checklist for buyers enabling them to address concerns about the property's condition on the spot. This form was developed by the British Columbia Real Estate Association.
Property Taxes - This levy is affected by location and the value of the property as determined by BC Assessment. The rate of taxation is determined by local government. Property taxes are paid on an annual basis.
Property Transfer Tax - Payment to the provincial government for transferring property from the seller to the buyer. In the 1994 provincial government's budget, the PTT was eliminated for first-time buyers under certain circumstances. Realtors - Real estate professionals licensed by the Real Estate Council of BC who are members of the various Real Estate Boards and the British Columbia and Canadian Real Estate Associations. Only these professionals can call themselves Realtors.
Rights of Way - Are indicated on title at the Land Title Office; often for use of utilities or city or municipality in order to make repairs to pipes, etc.; no permanent structure may be built on a right of way.
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.
Statements of Adjustments - Closing statements in a real estate transaction which set out the sources of funds which make up the purchase price, adjustments to and from the purchase price, the final amount required from the purchase and the amount due to the seller. Lawyers will prepare a statement for the seller and the buyer.
State of Title Certificate - A copy of the title which lists charges against the property, e.g.: liens, mortgages, rights of way, etc.
"Subject-to" Clause - A statement of a condition to be fulfilled before the contract will become firm and binding; must include a specific deadline for removal.
Survey - A document that illustrates the property boundaries and measurements, specifies the location of buildings on the property, and indicates any easements or encroachments.
Title - The legal evidence of ownership in a property.
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.
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.
Utility Taxes - Examples may include water, sewer and garbage (may include recycling levies).
Variable-rate Mortgage - A mortgage for which payments are fixed, but whose interest rate changes in relationship to fluctuating market interest rates. If mortgage rates go up, a larger portion of the payment goes to interest. If rates go down, a larger portion of the payment is applied to the principal.
Vendor Take-Back Mortgage - When sellers use their equity in a property to provide some or all of the mortgage financing in order to sell the property.
Zoning Regulations - Strict guidelines set and enforced by municipal governments regulating how a property may or may not be used.