Thinking about buying your first home? Getting ready to sell and upgrade your current home? Do you want to be better prepared and have a bit more knowledge about what all is going on? This is a simple dictionary of real estate terms that will help you out along the way.
This is by no means every term you will hear, but it’s a start.
The good thing is that a REALTOR® already knows all of these!
Amortization – The number of years it takes to repay the entire amount of a mortgage.
Annuity – A sum of money received at regular intervals in certain or nearly equal payments such as the installment rent payments due to a landlord under a lease.
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 the 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.
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 the principal increases, although the total payment doesn’t change. (Exception: see Variable-Rate Mortgages)
Brokerage – The business in which brokers are engaged to earn money by assisting people to buy, sell, rent or lease, manage or finance property or property rights.
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.
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 and keys to the property are transferred from the seller to the buyer, and the money is paid.
Common Elements – The portions of a condominium development owned in common (shared) by the unit owners.
CMA- Comparative Market Analysis or Competitive Market Analysis. A CMA is a report that shows prices of homes that are comparable to a subject home and that were recently sold, are currently on the market or were on the market, but not sold within the listing period.
Conditional Offer – A purchase contract that is presented to a seller that demands that one or more items be satisfied before the buyer is obligated to buy.
Conditional Sale – A term most frequently applied to a sale wherein the seller reserves the title to the goods, though the possession is delivered to the buyer, until the purchase price is paid in full.
Condominium – Shared ownership in property. Owners have title (ownership) to individual units and a proportionate share in the common elements
Condominium Fee- A maintenance fee charged by a condominium complex to cover the cost of repairs, landscaping, concierges, or amenities such as a gym or a pool.
Conventional Mortgage – A first mortgage issued for up to 75% of the property’s appraised value or purchase price, whichever is lower.
Counteroffer – One party’s written response to the other party’s offer during negotiation of a real estate purchase between buyer and seller.
DOM – Days on Market.
Debt Service Ratio – The percentage of a borrower’s gross income that can be used for housing costs, including mortgage payment and taxes. (and condominium fees, when applicable)
Depreciation – The natural decline in property value due to market forces or depletion of resources.
Down Payment – The part of the purchased price of a property that the buyer pays in cash and does not finance with a mortgage.
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.
Effective Interest Rate – A statement as a percentage of interest that is actually being paid by a borrower for the use of the money as distinct from the nominal or named interest rate.
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 encroachments
Equity – A homeowner’s financial interest in a property. The difference between the value of the property and the amount owing (if any) on the mortgage.
Escrow – An arrangement for the deposit of instruments and/or the handling of funds with instructions with a neutral third party to carry out the provisions of the agreement or contract when the specified conditions are met.
Estoppel Certificate – A written statement of a condominium unit’s current financial and legal status.
First Mortgage – The first security registered on a property. Additional mortgages secured against the property are “secondary” to the first mortgage.
For Sale by Owner – Often referred to as fis-bo after the acronym FSBO. It is a term referring to properties on the market that are not listed with a real estate broker.
Foreclosure – A legal process by which the lender takes possession and ownership of a property when the borrower doesn’t make (“defaults on”) the mortgage obligations.
High-Ratio Mortgage – A mortgage for more than 75% of a property’s appraised value or purchase price.
Income Property – Property bought or developed to earn income through renting, leasing or price appreciation.
Independent Contractor- A person who acts for another but sells final results and whose methods of achieving those results are not subject to that person’s control.
Inspection – A physical scrutinizing of documents or property done to assure correctness or paperwork such as loan papers, compliance with building codes, or absence or termites, etc.
Interest – The cost of borrowing money.
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.
Leverage – Controlling a large asset with a relatively small amount of cash. In real estate, $25,000 down payment (or less) can be used to purchase (control) a $100,000 home, for example.
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® to 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.
Market Price – The current price at which an asset or service can be bought or sold.
Mineral Rights – The legal right to exploit and enjoy the benefits of any minerals located below the surface or a parcel of land.
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 privately-backed insurance protecting the lender against the borrower’s default on high-ratio (and other types of) mortgages.
Mortgage Life Insurance – Insurance that pays off the mortgage debt, should the insured borrower die.
Mortgage Payment – The regular installments made towards paying back the principal and interest on a mortgage.
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.
Mortgager – The borrower.
Multiple Listing Service® (MLS) System- A system for relaying information to REALTORS® about properties for sale.
MLS –Title – A specific document which serves as proof of ownership.
Open Mortgage – A mortgage that can be prepaid or renegotiated at any time and in any amount without penalty.
Partially Open Mortgage – (Also called a “partially closed” mortgage.) Allows the borrower to prepay a specific portion of the mortgage principal at certain times with or without penalty.
Portability – A mortgage feature that allows borrowers to take their mortgage with them without penalty, when they sell their present home and buy another one.
Prepayment Privilege – A mortgage feature that allows the borrower to prepay a portion or all of the principal balance with or without penalty. This privilege is frequently restricted to specific amounts and times.
Principal – The mortgage amount initially borrowed, or the portion still owing on the mortgage. Interest is calculated on the principal amount.
Rate (Interest) – The return the lender receives for advancing the mortgage funds required by the borrower to purchase a property.
REALTORS® – Real Estate Professionals who are members of a local real estate board and the Canadian Real Estate Association. Only these professionals can call themselves REALTORS®.
Refinancing – The process of obtaining a new mortgage, usually at a lower interest rate, to replace the existing mortgage.
Reserve Fund – The portion of a condominium maintenance fee that is set aside to cover major repair and replacement costs.
Second Mortgage – A second financing arrangement, in addition to the first mortgage, also secured by the property. Second mortgages are usually issued at a higher interest rate and for a shorter term than the first mortgage.
Secondary Financing – Second, third, fourth, etc. mortgages, secured by a property “behind” the first mortgage.
Take-Back Mortgage – See Vendor-Take-Back Mortgage
Term- See Mortgage Term
Title – The legal evidence of ownership of a property.
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.
Unit – Term used to describe the individual home or apartment held by the owner within a condominium development.
Variable Rate Mortgage- A mortgage for which payments are fixed, but whose interest rate changes in relationship to fluctuating market interest rates. If market rates go up, a larger portion of the payment goes to interest. If rates go down, a large 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.
Weekly Payments – Mortgage payments made weekly or 52 times per year.
Zoning Regulations – Strict guidelines set and enforced by municipal governments regulating how a property may or may not be used.