Glossary of Real Estate Terms
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.
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.
The actual number of years it will take to pay back your mortgage loan. In Canada the amortization does not generally exceed 25 years.
Most lenders allow borrowers to make a payment on the anniversary of the mortgage. It is applied against the principal and is a good way of reducing a loan.
A process that determines the market value of a property.
An estimate of the value of the property, conducted for the purpose of mortgage lending by a certified appraiser. This appraisal is not to be confused with a building inspection.
The increase in a property’s value over time.
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.
A transaction between unrelated entities where a willing seller (the seller is not compelled to sell) transacts with a willing buyer (the buyer is not compelled to buy).
The value of a property, set by the B.C Assessment Authority, and used by the local municipality for the purposes of calculating property tax.
A type of financing arrangement in which the outstanding mortgage and its terms can be transferred from the current owner to a buyer. By assuming the previous owner's remaining debt, the buyer can avoid having to obtain his or her own mortgage.
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.
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 Payments:
Equal or regular mortgage payments, consisting of both a principal and an interest component.
Bridge financing is used as temporary funds to cover the cost of your new home if the sale of your current home isn't complete by the time your new home's purchase is scheduled to complete. In order to arrange bridge financing you must have an unconditional offer to purchase your existing home.
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.
A one-story house, cottage, or cabin.
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.
When the seller reduces the interest rate on a mortgage by paying the difference between the reduced rate and the market rate directly to the lender or to the purchaser.
Canadian Mortgage and Housing Corporation – CMHC:
A division of the Government of Canada that acts as Canada's national housing agency. The CMHC's mandate is to help Canadians access a variety of affordable housing options. It also researches housing and real estate trends in Canada and around the world, providing research to consumers, businesses and other government divisions. The major activity of the CMHC, and the one for which it is best known, is mortgage loan insurance, which insures approved lenders (such as Canada's chartered banks) against borrower default. Mortgage loan insurance provides approved borrowers access to low-cost mortgage rates. CMHC approved buyers may purchase property with as little as 5% down payment.
The final procedure in a home sale in which documents are signed and recorded. This is the time when the ownership of the property is transferred.
A mortgage that locks you into a specific payment schedule. A penalty usually applies if you repay the loan in full before the end of a closed term.
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.
Expenses in addition to the purchase price for buying and selling a property.
The date on which the sale of a property becomes final and the new owner takes possession.
A document commonly used in real estate transactions, detailing the fees, commissions, insurance, etc. that must be transacted for a successful transfer of ownership to take place. This document is prepared by a closing agent and is also known as a "settlement sheet".
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.
Properties or assets that are offered to secure a loan or other credit. Collateral becomes subject to seizure on default.
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.
Commercial Real Estate:
Property that is solely used for business purposes.
The number of times per year in which the interest rate is compounded. In Canada, mortgages are generally compounded semi-annual which is twice per year.
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.
A large property complex that is divided into individual units and sold. Ownership usually includes a non-exclusive interest in certain "common properties" controlled by the condominium management.
Condominium Common Property, or Common Elements:
The portions of a condominium development owned in common (shared) by the unit owners, e.g.: pool exercise room, lobby, etc. A strata fee is charged to every unit owner for the use of the common property.
A common payment among owners which is allocated to pay expenses associated with the development.
Shared ownership in a strata-titled property. Owners have title (ownership) to individual units and a proportionate share in the common property.
A mortgage that does not exceed 75% of the purchase price of the home. Mortgages that exceed this limit must be insured against default, and are referred to as high-ratio mortgages.
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.
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).
An offer made by the seller back to the buyer altering one or several terms and/or conditions of the offer as originally written.
Debt to Income Ratio:
A ratio that indicates what portion of a person's monthly income goes toward paying debts. It is calculated as an individual's total monthly debt, divided by gross monthly income and expressed as a percentage. Total monthly debt includes such expenses as mortgage payments (made up of PITI), credit-card payments, child support and other loan payments. Lenders use this ratio in conjunction with the front-end ratio to approve mortgages.
A legal document that grants the bearer a right or privilege, provided that he or she meets a number of conditions. In order to receive the privilege - usually ownership, the bearer must be able to do so without causing others undue hardship. A person who poses a risk to society as a result of holding a deed may be restricted in his or her ability to use the property. Deeds are most known for being used to transfer the ownership of automobiles or land between two parties.
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.
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.
The buyer's cash payment toward the property. The difference between the purchase price and the amount of the mortgage loan.
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.
An intrusion onto an adjoining property. Common examples are a neighbour’s fence, storage shed, or overhanging roofline that partially (or even fully) intrudes onto your property.
A registered claim for debt against a property, such as a mortgage.
The difference between the price for which a property can be sold and the mortgage(s) on the property. Equity is the owner’s stake in the property.
Effective Interest Rate:
This is the actual interest rate paid on a loan or mortgage. In Canada, mortgages typically have a higher effective interest rate because of the fact that interest rates are compounded semi-annually or twice per year.
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.
The first mortgage in the mortgage agreement that is considered to be in first place and will have first claim on assets in the event of default.
Fixed Rate Mortgage:
A mortgage in which the rate of interest has been fixed for a specific period of time. This specific period of time is generally known as the term.
A legal process by which the lender takes possession and ownership of a property when the borrower doesn’t meet the mortgage obligations.
A ratio that indicates what portion of an individual's income is used to make mortgage payments. It is calculated as an individual's monthly housing expenses, divided by his or her monthly gross income, and then expressed as a percentage. Monthly housing expenses include the mortgage principal, interest, taxes and insurance payments - collectively known as PITI. Monthly gross income is simply annual income divided by 12 (months). Lenders use the front-end ratio in conjunction with the back-end ratio to approve mortgages.
GDS Ratio (Gross Debt Service Ratio):
The percentage of gross annual income required to cover payments associated with housing. Payments include mortgage principal, interest, property taxes and sometimes include secondary financing, heating, condominium fees or pad rent.
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 mortgage that exceeds 75% of the home's appraised value or purchase price, whichever is lower. These mortgages must be insured for payment.
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.
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.
The value charged by the lender for the use of the lender's money, expressed as a percentage.
Interest Rate Ceiling:
The absolute maximum rate of interest that a financial institution can charge for an adjustable rate mortgage or loan.
Investment Real Estate:
Real estate that generates income or is otherwise intended for investment purposes rather than as a primary residence. It is common for investors to own multiple pieces of real estate, one of which serves as a primary residence, while the others are used to generate rental income and profits through price appreciation. The tax implications for investment real estate are often different than those for residential real estate.
Property or real estate, not including buildings or equipment, that does not occur naturally. Depending on the title, land ownership may also give the holder the rights to all natural resources on the land. These may include water, plants, human and animal life, fossils, soil, minerals, electromagnetic features, geographical location, and geophysical occurrences.
The total value of the land, including any upgrades or improvements to the land.
Land Transfer Tax, Deed Tax or Property Purchase Tax:
A fee paid to the municipal and/or provincial government for the transferring of property from seller to buyer.
The purchase price or appraised value of a property, whichever is less.
Any legal claim against a property, filed to ensure payment of a debt.
Loan to Value Ratio:
The ratio of the loan to the appraised value or purchase price of the property, whichever is lower.
The end of the term, at which time you can pay off the mortgage or renew it.
A debt instrument, secured by the collateral of specified real estate property, that the borrower is obliged to pay back with a predetermined set of payments. Mortgages are used by individuals and businesses wishing to make large value purchases of real estate without paying the entire value of the purchase up front. Mortgages are also known as liens against property, or claims on property.
Mortgage Approval - Commitment Letter:
Written notification from the mortgage lender to the borrower that approves the advancement of a specified amount of mortgage funds under specified conditions.
A company, individual or institution that originates, sells and services mortgage loans.
The matchmaker between a homebuyer and a lender whose goal is to originate a mortgage loan. The broker draws from a pool of various lenders to find the right match.
An entity that lends money to a borrower for the purpose of purchasing a piece of real property. By accepting a mortgage on the real property, the lender creates security in the full repayment of the loan in the future.
Applies to high-ratio mortgages. It protects the lender against loss if the borrower is unable to repay the mortgage.
Mortgage Life Insurance:
Pays off the mortgage if the borrower dies.
A regularly scheduled payment that is blended to include both principal and interest.
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.
An individual or company who borrows money to purchase a piece of real property. By granting the lender an interest in the property, which allows it to lend the funds with an accurate assessment of risk, the mortgagor provides the lender with a guarantee for the full repayment of the loan.
Multiple Listing Service® (MLS®):
A current and comprehensive listing system for relaying property information to Vancouver Real Estate Board REALTORS. This service offers the widest exposure to properties listed for sale.
A person's total financial worth, calculated by subtracting total liabilities from assets.
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.
Nominal Interest Rate:
An interest rate which does not necessarily correspond to the effective interest rate. In Canada, these two rates do not correspond.
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.
Allows partial or full payment of the principal at any time, without penalty.
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.
OSB (Outstanding Balance):
The amount of principal which is still outstanding at the end of the term.
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.
Principal, Interest, Taxes, and Heating - costs used to calculate the Gross Debt Service ratio (GDS).
A mortgage option that enables borrowers to take their current mortgage with them to another property, without penalty.
Qualifies you for a mortgage before you start shopping. You know exactly how much you can spend and are free to make a "firm" offer when you find the right home.
Voluntary payments in addition to regular mortgage payments.
The amount borrowed or still owing on a mortgage loan. Interest is paid 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 liable. The form also serves as a checklist for buyers enabling them to address concerns about the property’s condition on the spot. The British Columbia Real Estate Association developed this form. Submission of the form is required before any listing is placed on the Vancouver Real Estate Board’s MLS® system.
Location and the value of the property as determined by BC Assessment affect this levy. Local
government determines the rate of taxation. 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.
A person with a state/provincial license to represent a buyer or a seller in a real-estate transaction in exchange for commission. Most agents work for a real-estate broker or realtor.
Real estate professionals licensed by the Real Estate Council of BC who are members of the Vancouver Real Estate Board and the British Columbia and Canadian Real Estate Associations. Only these professionals can call themselves REALTORS.
Paying off the existing mortgage and arranging a new one or re-negotiating the terms and conditions of an existing mortgage.
Re-negotiation of a mortgage loan at the end of a term for a new term.
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.
Additional financing. Usually has a shorter term and higher interest rate than the first mortgage.
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.
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.
A statement of a condition to be fulfilled before the contract will become firm and binding; must include a specific deadline for removal.
A document that illustrates the property boundaries and measurements, specifies the location of buildings on the property, and indicates any easements or encroachments.
TDS Ratio (Total Debt to Service Ratio):
The percentage of gross annual income required to cover payments associated with housing and all other debts and obligations, such as car loans and credit cards.
The length of time the interest rate is fixed. It also indicates when the principal balance becomes due and payable to the lender.
Legal ownership in a property.
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 (TDS) Ratio:
The percentage of gross annual income required to cover all payments for housing and all other debts, such as car payments.
A mortgage with fixed payments, but fluctuates with interest rates. The changing interest rate determines how much of the payment goes towards the principal.
Vendor Take-Back Mortgage:
When the seller provides some or all of the mortgage financing in order to sell their property
Examples may include water, sewer and garbage (may include recycling levies).
Government (usually municipal) laws that control the use of land within a jurisdiction.