Real Estate terms 101:

June 23, 2017

Adjustable mortgage interest rate: This is a type of mortgage with an adjustable rate, both the interest rate and the mortgage payment vary, based on market conditions.

Amortization: Length of time over which the debt will be repaid to zero, given regular payments.

Appraisal: The appraisal is a process for estimating the market value of a property, typically done before subject removal. This act is done by a certified professional appraiser often hired by the bank.

Appreciation: The increase in value of something because it is worth more now than when you bought it.

Assignee: The person to whom an interest or right in real property is transferred.

Assignment: The transfer of any right, claim or interest to another person or corporation. An assignment would be done when a purchaser of a home is needing to “assign” the purchased property to another buyer prior to the completion date. In BC, in order to assign the property the seller also needs to agree, unless otherwise stated in the contract.

Assignor: The person transferring an interest or right in real property. The current buyer under the Contract of Purchase and Sale.

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.

Carriage home: A carriage, or link home, is joined by a garage or carport.

Closed mortgage: In some cases, a closed mortgage cannot be paid off or renegotiated, in whole or in part, before the end of its term unless the buyer is willing to pay a penalty. In other cases, the lender may allow for partial prepayment in the form of an increased mortgage payment or a lump sum prepayment. However, any prepayment made above stipulated allowances may incur penalty charges.

Closing costs: Costs in addition to the purchase price of the home, such as legal fees, transfer fees and disbursements, that are payable on closing day, aka completion day. They range from 1.5% to 4% of a home’s selling price and are calculated by the notary or lawyers. For an estimate of your closing costs, make sure to have your realtor calculate for your prior to an accepted offer to ensure that you have the funds upon completion.

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 develops and sells mortgage loan insurance products.

CMHC insurance premiums: When a home buyer takes out a mortgage loan with less than a 20% down payment, an insurance premium is paid to CMHC, and a mortgage loan insurance policy is issued to the lender. The CMHC Mortgage Loan Insurance premium is calculated as a percentage of the loan and is based on a number of factors such as the purpose of the property (owner occupied or rental), the type of loan (i.e. purchase/construction or refinance loan), the ability of a self-employed borrower to supply income verification, and the size of your down payment (i.e. the higher the percentage of the total house price/value that you borrow, the higher percentage you will pay insurance premiums).

Commitment letter (or 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.

Completion day: Also know as the closing day in which monies are transferred from the buyer to the seller. Date on which the sale of the property becomes final and the new owner takes title to the home.

Compound interest: Interest calculated on both the principal and the accrued interest.

Conditional offer: An Offer to Purchase that is subject to specified conditions, for example, the arrangement of a mortgage or an inspection. There is usually a stipulated time limit within which the specified conditions must be met. This is also known as an accepted contract of purchase and sale subject to removal. This removal process is called “subject removal.”

Condominium: Also known as strata property or a type of attached home. You own the unit you live in (eg: highrise or lowrise) and share ownership rights for the common areas (such as the lobby) of the building along with the development’s other owners. Condo’s have a monthly maintenance fee each unit has to pay for, as well as bylaws/rules/regulations that need to be followed by the owners and tenants of each unit.

Conventional mortgage: A mortgage loan up to a maximum of 80% of the lending value of the property. Typically, the lending value is the lesser of the purchase price and market value of the property. Mortgage insurance is usually not required for this type of mortgage.

Counteroffer: If, for example, your original offer to the vendor is not accepted, the vendor may counteroffer. This means that the vendor has amended something from your original offer, such as the price or closing date. As this new offer varies the terms of the original offer, this rejects the original offer. If a counteroffer is presented, the individual has a specified amount of time to accept or reject. 

Credit history or Credit Report: The main report a lender uses to determine your creditworthiness. It includes information about your ability to handle your debt obligations and your current outstanding obligations.

Curb appeal: Curb Appeal is the first impression that a home will give the better, and can be summed up by how attractive the home looks from the street. A home with good curb appeal will have attractive landscaping and a well-maintained exterior. A good power wash is always a great start.

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/notary until the sale is closed and then it is paid to the vendor. In Greater Vancouver this amount is typically 5% of the purchase price, and is due upon or within 24 hours of subject removal. In a hotter market with subject free offers, the deposit is often presented with the Contract of Purchase and Sale at the time of offer presentations for negotiation purposes, thus proving that they are a ready and motivated buyer.

Depreciation: The decrease in value of something because it is now worth less than when you bought it.

Down payment: The portion of the home price that is not financed by the mortgage loan. The buyer must pay the down payment from his/her own funds or other eligible sources before securing a mortgage. The deposit forms a part of the down payment. Down payments range from 5% onwards, and are typically between the 5% to 25% range. Down payments that are less than 20% in BC are subject to CMHC Insurance Premiums which can be added on to the monthly mortgage payment.

Easement: An interest in land owned by another person that benefits the person who has the easement, for a specific limited purpose (i.e. right of way permitting passage over a particular strip of land) such as with public utilities.

Fixed mortgage interest rate: A locked-in rate that will not increase for the term of the mortgage. For example, a 2.79% rate for a 5 year term.

Foreclosure: A legal process where the lender takes possession of your property and sells it to cover the unpaid debt.

High-ratio mortgage: A mortgage loan higher than 80% of the lending value of the property. This type of mortgage must be insured — by CMHC or a private company, for the benefit of the approved lender, against payment default.

Interest rate: The price paid for the use of money borrowed from a lender.

Lien: 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.

Lump sum prepayment: An extra payment, made in lump sum, to reduce the principal balance of your mortgage, with or without penalty. 

Maturity date: The last day of the term of the mortgage. On this day, the mortgage loan must either be paid in full or the agreement renewed.

Mortgage: A mortgage is a security interest given in the property you are purchasing which secures repayment of the loan related to the property. That security interest is discharged on payment of the principal and interest owning on the loan in accordance with the mortgage document.

Mortgagee: The lender who provides the mortgage loan.

Mortgage broker: The job of the mortgage broker is to find you a lender with the terms and rates that will best suit you.

Mortgage term: Length of time that the mortgage contract conditions, including interest rate, is fixed.

MLS — Multiple Listing Service: A multiple listing service that contains descriptions of most of the homes that are for sale. This computer-based service is used to keep up with properties that are listed for sale. 

New Home Warranty Program: Coverage in the event that an item under the warranty needs to be repaired within the specific warranty period. The repair will be made by the organization that provided the warranty. Also known as a 2-5-10 program in BC.

Offer to purchase: A written contract setting out the terms under which the buyer agrees to buy the home. If the Offer to Purchase is accepted by the seller, it forms a legally binding contract that binds the people who signed to certain terms and conditions.

Open mortgage: A flexible mortgage that allows you to pay part before the end of its term.

Open-house: A period of time during which a house or apartment for sale or rent is held open for public viewing.

Possession Date: Usually the same date as the adjustment date. The day you are entitled to the legal possession of the property you have purchased (you get the keys!). In BC, possession usually occurs a day or two after completion.

Property taxes: Taxes charged by the municipality where the home is located, usually based on the value of the home. In some cases the lender will collect a monthly amount as part of the mortgage payment to cover your property taxes, which is then paid by the lender to the municipality on your behalf.

Realtor or real estate agent: A person who acts as an intermediary between the seller and the buyer of a property.

Reserve fund: Also knows as the Contingency Reserve Fund. A fund required to be set up by the condominium corporation for major repair and replacement of common elements and assets of a corporation. This amount is set aside by the homeowner on a regular basis so that funds are available for emergency or major repairs.

Restrictive covenant: Restrictive covenant agreements are signed agreements usually between a property owner (covenantor) and covenantee that is registered on the title of a given property. The agreement usually specifies some restriction of activities, building, or land-use that is applied to a portion of the subject property.

Row house: Also called a townhouse, a row house is one unit of several similar single-family homes, side-by-side, joined by common walls.

Single-family detached home: Also known as just a detached home. Free-standing home for one family, not attached to a house on either side. 

Subject Clause: A condition(s) that must be satisfied before a contract becomes firm (unconditional). Examples are subject to financing, inspection or receipt and approval of condominium bylaws and financial statements. The conditions must be removed from the contract in writing by a certain date in order for the contract to become “firm”.

Subject Removal: A period, typically a week, in which all subject clauses must be satisfied in order for the contract to become firm. The deposit is typically due once subject removal has been completed.

Survey or Certificate of location: A document that shows property boundaries and measurements specifies the location of buildings, fences, and other improvements on the property and states easements or encroachments, at a specific point in time.

Term: Mortgage term is the length of time that the mortgage contract conditions, including interest rate, are fixed.

Title: A freehold title is an interest in land that gives the holder full and exclusive ownership of the land and building for an indefinite period. A leasehold title is an interest in land that gives the holder the right to use and occupy the land and building for a defined period.

Title Insurance: Insurance against loss or damage arising from a matter affecting the title to real property (e.g.: by a defect in the title or by the existence of a lien, encumbrance or servitude).

Variable mortgage interest rate: Fluctuates based on market conditions but the mortgage payment remains unchanged.

Vendor: The seller of a property.

Vendor take-back mortgage (Sometimes called take-back mortgage): The vendor, not a financial institution, finances the mortgage. The title of the property is transferred to the buyer who makes mortgage payments directly to the seller.