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REAL
ESTATE TERMINOLOGY
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Amortization
The
period of time, most often 15, 20 or 25 years,
required to reduce a debt to zero when payments
are made regularly.
Appraisal
A process for
estimating the market value of a particular
property. It can help the purchaser determine what
price to offer. It can also be used by the lender
for mortgage purposes. The appraised value seldom
matches the actual purchase price exactly as other
factors influence price.
Approved
Lender
A
lending institution authorized by the Government
of Canada through CMHC to make loans under the
terms of the National Housing Act. Only Approved
Lenders can negotiate mortgages which require
mortgage loan insurance.
Assumption
Agreement
A legal
document signed by a home buyer that requires the
buyer to assume responsibility for the obligations
of a mortgage by the builder or the original
owner.
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.
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.
Closing
Costs
Costs,
in addition to the purchase price of the home,
such as legal fees, transfer fees and
disbursements, that are payable on the closing
date. Closing costs typically range from 1.5%-4%
of a home's selling price.
Closing
Date
The
date on which the sale of a property becomes final
and the new owner takes possession.
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.
Collateral
Mortgage
A mortgage
which secures a loan by way of a promissory note.
The money which is borrowed can be used to buy a
property or for another purpose such as home
renovation or for a vacation.
Commitment
Letter / Mortgage Approval
Written
notification from the mort-gage lender to the
borrower that approves the advancement of a
specified amount of mortgage funds under specified
conditions.
Conventional
Mortgage Loan
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 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.
Deed
A legal
document which is signed by both the vendor and
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
Money
placed in trust by the purchaser when an Offer to
Purchase is made. The sum is held by the real
estate representative or lawyer until the sale is
closed, and then 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
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
right acquired for access to or over, or for 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 it. 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.
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 (GDS)
The
percentage of the borrower’s gross monthly
income that will be used for monthly payments of
principal, interest, taxes, heating costs and half
of any condominium maintenance fees.
High-ratio
Mortgage
A
mortgage loan in excess of 75% of the lending
value of the property. This type of mortgage must
be insured against payment default.
Holdback
An
amount of money withheld by the lender during the
progress of construction of a house to ensure that
construction is satisfactory at every stage. A
standard holdback amount 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
Adjustment Date (IAD)
A
date from which interest on the mortgage advanced
is calculated for your regular payments. This date
is usually one payment period before regular
mortgage payments begin. Interest due from the
date your mortgage is advanced to the IAD is due
on closing.
Lending
Value
The
purchase price or market value of a property,
whichever is less.
Lien
(Mechanic’s)
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 statute that
varies from province to province. If the
lienholder takes action within the prescribed
time, the homeowner may be obliged to pay the
amount claimed by the lien-holder. Alternatively,
the lienholder may force a sale of the property to
pay off the debt.
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 $90,000 on
a home which costs $100,000 is 90%.
Maturity
Date
The last day
of the term of the mortgage agreement. On this day
the mortgage loan must be either paid in full or
the agreement renewed.
Mortgage
A
mortgage is security for a loan on the property
that you own. It is your personal guarantee to
repay the loan as well as a pledge of the property
as security for the loan.
Mortgage
Loan Insurance
If
you have a high-ratio mortgage (more than 75% of
the purchase price), your lender will require
mortgage loan insurance available from a private
insurer. The insurance premium will cost between
0.5% and 3.75% of the amount of the mortgage
(additional charges may apply).
Mortgage
Life Insurance
This
insurance guarantees that if you die your mortgage
will be paid in full. This insurance can be
conveniently purchased through your lender and the
premium added to your mortgage payments. However,
you may want to compare rates for equivalent
products from an insurance broker.
Mortgage
Payment
A
regularly scheduled payment that is 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
Your
total financial worth, calculated by subtracting
your total liabilities from your total assets.
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.
Option
Agreement
A document
stipulating that, in exchange for a deposit, a
specified individual is to be given the first
chance of buying 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.
P.I.T.
Principal,
interest and taxes - payments due on a regular
basis under the terms of the 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).
Principal
The amount of
money actually borrowed.
Realtor
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, sometimes with a
different lender.
Second
Mortgage
An
additional mortgage on a property that already has
a mortgage.
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
A freehold
title gives the holder full and exclusive
ownership of land and buildings for an indefinite
period of time. In condominium ownership, land and
common elements of buildings are owned
collectively by all unit owners, while the
residential units belong exclusively to the
individual owners. A leasehold title gives the
holder a right to use and occupy land and
buildings for a defined period of time.
Total
Debt Service Ratio (TDS)
The
percentage of gross monthly income required to
cover all monthly payments for housing and all
other debts, such as car payments.
Vendor
Take Back Mortgage
Mortgage
financing arranged between the seller of the
property and the buyer. The title is transferred
to the buyer. Often this type of loan is a second
mortgage which the seller is willing to arrange at
below market rates to ensure the buyer can
purchase the house. Most of these arrangements are
not renewable or transferable to the next owner of
the house.
Zoning
Bylaws
Municipal
or regional laws that specify or restrict land
use. Easement
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BROOKE MILLER
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RE/MAX Camosun
4440 Chatterton Way, Victoria, BC, Canada, V8X 5J2