Home Buying Terms

Adjustable mortgage interest rate
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

Appraisal
Process for estimating the market value of a property

Appraiser
Certified professional who carries out an appraisal

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

Carriage home
A carriage, or link home, is joined by a garage or carport. The garage or carport gives access to the front and back yards. Builders sometimes join basement walls so that link houses appear to be single-family homes on small lots. These houses can be less expensive than single family detached homes.

Cistern
A cistern is a large storage tank for holding water. Cisterns may be used as a household water supply in areas with low well capacity or poor water quality.

Certificate of Location (Land Survey)
A document that shows property boundaries and measurements, specifies the location of buildings on the property, and states easements or encroachments.

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. They range from 2% to 4% of a home’s selling price.

Closing day
Date on which the sale of the property becomes final and the new owner takes possession of the home.

Conditional offer
An offer to purchase that is subject to specified conditions, for example, the arrangement of a mortgage. There is usually a stipulated time limit within which the specified conditions must be met.

Condominium (or strata)
A unit usually in a high-rise, low-rise, or townhouse that can be owned. You own the unit you live in and share ownership rights for the common space of the building. Common space includes areas such as corridors, the grounds around the building, and facilities such as a swimming pool and recreation rooms. Condominium owners together control the common areas through an owners’ association. The association makes decisions about using and maintaining the common space.

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.

Counter-offer
If your original offer to the Seller is not accepted, the Seller may counter-offer. This means that the Seller has amended something from your original offer, such as the selling price or the closing date. If a counter-offer 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 credit-worthiness. It includes information about your ability to handle your debt obligations and your current outstanding obligations.

Deed
A legal document that is signed by the vendor and purchaser when transferring ownership. This document is registered as evidence of ownership.

Deposit
Money placed in trust by the Buyer when an offer to purchase is made. The real estate brokerage or lawyer / notary holds the sum until the sale is closed at which point it is paid to the Seller.

Depreciation
The decrease in the 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.

Duplex
A duplex is a building containing two single-family homes, located one above the other.

Easement
This is where someone else has the right for access to, or over, another person’s land for a specific purpose, such as a driveway or public utilities.

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 mortgage is reduced through regular payments. Market values and improvements to the property may also affect equity.

Estoppel Certificate
Also called a certificate of status, it is a certificate that outlines a condominium corporation’s financial and legal status.

Finance 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.

Fixed mortgage interest rate
A locked-in rate that will not increase for the term of the mortgage.

Foreclosure
The legal process where the lender takes possession of your property and sells it to cover the debts you have failed to pay off. When you default on a loan and the lender feels that you are unable to make payments, you may lose your home to foreclosure.

Freehold
Ownership of land and buildings by one person (or two, such as joint ownership by spouses). Detached and semi-detached homes, duplexes and townhouses are usually owned freehold. Freehold owners can do what they want with their property – up to a point. They must obey municipal by-laws, subdivision agreements, building codes, and federal and provincial laws, such as those protecting the environment.

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 and heating costs (P.I.T.H.) and half of any condominium maintenance fees.

Gross monthly income
Monthly income before taxes and deductions.

High-ratio mortgage
A mortgage loan higher than 80% of the lending value of the property. This type of mortgage may have to be insured – by CMHC, for example – against payment default.

Home inspector
A person who visually inspects a home to tell you if something is not working properly, or is unsafe. He or she will also tell you if repairs are needed, and maybe even where there were problems in the past.

Home warranty
(New Home Warranty Program) A guarantee that if something covered under the warranty needs to be repaired it will be. If the builder doesn’t repair it, the repair will be made by the organization that provided the warranty.

Insurance
Insurance provides coverage to ensure a loan is paid. See also Mortgage Loan Insurance and Mortgage Life Insurance

Insurance Premium
Payment for insurance

Interest
The cost of borrowing money. Interest is usually paid to the lender in regular payments along with repayment of the principal (loan amount).

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

Land registration
A legal document that records the ownership of a property and land.

Land survey
(Survey or Certificate of Location) A document that shows property boundaries and measurements, specifies the location of buildings on the property and states easements or encroachments.

Land surveyor
A professional who can survey a property in order to provide a certificate of location.

Lawyer
A legal advisor who assists people by representing them on legal matters.

Lender
A mortgage lender is an institution (bank, trust company, credit union etc.) that lends money for a mortgage.

Life Insurance
See Mortgage Life Insurance

Lien
A claim against a property for money owing. A supplier, or a subcontractor, who has provided labour or materials but has not yet been paid, may file a lien.

Link Home
See Carriage Home

Lump Sum Prepayment
An extra payment, made in a lump sum, to reduce the principal balance of your mortgage, with or without penalty. A closed mortgage typically restricts the amount and frequency of the prepayments you can make. With an open mortgage, however, you can make a lump sum prepayment at any time without penalty. Making prepayments can help you pay off your mortgage sooner and ultimately save on interest costs over the life of your mortgage.

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

Mobile Home
These are built in factories, and then taken to the place where they will be occupied. While these homes are usually placed in one location and left there permanently, they do retain the ability to be moved.

Modular Home
A factory-built, single family home. The home is typically shipped to a location in two, or more, sections (or modules).

Mortgage
A mortgage is a security for a loan on the property you own. It is repaid in regular mortgage payments , which are usually blended payments. This means that the payment includes the principal (amount borrowed) plus the interest (the charge for borrowing money). The payment may also include a portion of the property taxes.

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 Life Insurance
Mortgage life insurance gives coverage for your family, if you die before your mortgage is paid off.

Mortgage Loan Insurance
If you have a high-ratio mortgage (more than 80% of the lending value of the property) your lender will probably require mortgage loan insurance, which is available from CMHC or a private company.

Mortgage Payment
A regular payment to the lender that includes both the interest and the principal.

Mortgage Term
Length of time that the agreed-upon mortgage contract conditions, including interest rate, is fixed.

MLS – Multiple Listing Service
A multiple listing service is a real estate agents’ cooperative service that contains descriptions of most of the homes that are for sale. Real estate agents use this computer-based service to keep up with properties they are listing for sale in their area.

Net Worth
Your financial worth, calculated by subtracting your total liabilities from your total assets.

New Home Warranty Program
Coverage in the event that an item under the warranty needs to be repaired. If the builder doesn’t repair it, the repair will be made by the organization that provided the warranty.

Offer to Purchase
A written contract setting out the terms under which the buyer agrees to buy the home. If the seller accepts the offer to purchase, 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.

Operating Costs
The expenses that a homeowner has each month to operate a home. These include property taxes, property insurance, utilities, telephone and communications charges, maintenance, and repairs.

Payment Schedule
Monthly, bi-weekly, or weekly mortgage payments

PCDS – Property Condition Disclosure Statement
A three page document filled out by the seller indicating any problems, repairs, or upgrades to the subject property.

Principal
The amount you borrow for a loan. Each monthly mortgage payment consists of a portion of the principal that must be repaid, plus the interest that the lender is charging you on the outstanding loan balance. During the early years of your mortgage, the interest portion is usually larger than the principal portion.

P.I.T.H.
Principal, interest, taxes and heating – costs used to calculate the Gross Debt Service ratio (GDS).

Property Insurance
Insurance that you buy for the building(s) on the land you own. This insurance should be high enough to pay for the building to be re-built if it is destroyed by fire or other hazards listed in the policy.

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

Reserve Fund
The homeowner on a regular bases sets this amount aside so that funds are available for emergency or major repairs. Setting aside 5% of your monthly take-home pay will give you a well-funded reserve.

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

Single Family Detached Home
Freestanding home for one family, not attached to a house on either side.

Single Family Semi-detached home
Home for one family, attached to another building on one side.

Stacked Townhouse
Two two-story homes are stacked one on top of the other. The buildings are usually attached in groups of four or more. Each unit has direct access from the outside.

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

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

Title Insurance
Insurance against loss or damage caused by a matter affecting the title to immoveable property, in particular a defect in the title or by the existence of a lien, encumbrance or servitude.

Total Debt Service Ratio
The percentage of gross monthly income required to cover the monthly housing payments and other debts, such as car payments.

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

Variable Mortgage Interest Rate
Fluctuates based on market conditions but the mortgage payment remains unchanged

Vendor
The seller of a property

Warranty – New Home Warranty Program
Coverage in the event that an item under the warranty needs to be repaired. If the builder doesn’t repair it, the repair will be made by the organization that provided the warranty. All provinces have New Home Warranty programs for newly built homes.