Navigating the world of real estate can be challenging, especially for beginners. To help you better understand the Canadian real estate market, and the Waterloo Region market specifically, we have put together a comprehensive guide to common terminology you may encounter during your home buying or selling journey.
Familiarizing yourself with these terms will empower you to make well-informed decisions throughout the process. As this is a long read, feel free to bookmark this post so you can refer back to it later.
Adjustable Rate: An adjustable-rate mortgage (ARM), also known as a variable-rate mortgage, is a type of mortgage loan where the interest rate is not fixed for the entire term of the loan. Instead, the interest rate is periodically adjusted based on a reference interest rate or index, such as the prime rate
Amortization Period: The amortization period is the length of time it takes to pay off a mortgage in full, including both principal and interest. In Canada, the maximum amortization period is typically 25 years for insured mortgages and can be up to 30 years for uninsured
Appraisal: An appraisal is a professional assessment of a property's market value, typically conducted by a certified appraiser. Appraisals are often required by mortgage lenders to ensure the property's value aligns with the requested loan amount.
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 needs to “assign” the purchased property to another buyer prior to the completion date.
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. Even though the principal part of the payment goes up over time and the interest part goes down, the total amount of the payment stays the same.
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 the stipulated allowances may incur penalty charges.
Closing costs: These are 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." The notary or lawyers determine them, and they range from 1.5% to 4% of a home's selling price.
For an estimate of your closing costs, make sure to have your Realtor calculate them prior to an accepted offer to ensure that you have the funds upon completion.
CMHC: Also known by its longer mame, Canada Mortgage and Housing Corporation, this is 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 or value that you borrow, the higher the percentage you will pay in 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.
The day that the money is transferred from the buyer to the seller is known as the completion day or closing day. It is the day the property is legally transferred to the new owner and the sale is finalized.
Compound Interest: Interest calculated on both the principal and the accrued interest.
Conditional Offer: This is an offer that is subject to a condition, such as the approval of a mortgage or the results of an inspection. The required conditions are typically subject to a time frame that must be met. This is also referred to as an "accepted purchase and sale" subject to removal.
Condominium: Also known as strata property. You own the unit you live in (e.g., highrise or lowrise) and share ownership rights for the common areas (such as the lobby) of the building with the development’s other owners. Condos have a monthly maintenance fee each unit has to pay, as well as bylaws, rules, and 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 the 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 seller has changed something from your original offer, such as the price or closing date. As this new offer varies from the terms of the original offer, it rejects the original offer. If a counteroffer is presented, the individual has a specified amount of time to accept or reject it.
Credit Report: This is 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 buyer 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.
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.
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% 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 owing 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 : MLS stands for Multiple Listing Service. It is a comprehensive database of property listings that real estate agents and brokers use to share information about homes for sale.
The main purpose of MLS is to enable cooperation between real estate professionals, who agree to share commission with the agent who brings a buyer to a property listed on the database.
In Canada, the Canadian Real Estate Association (CREA) operates the MLS system through its subsidiary, REALTOR.ca.
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.
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: An open mortgage is a flexible mortgage loan that allows borrowers to make additional payments, prepayments, or pay off the mortgage in full at any time without incurring penalties or fees. This type of mortgage typically has a higher interest rate compared to closed mortgages, in exchange for the increased flexibility and the option to pay off the loan early.
Open-House: A period of time during which a house or apartment for sale or rent is held open for public viewing.
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. One of the best people to have on your side whether you are buying or selling a Waterloo Region home, and a professional who can make the whole process easier and more efficient.
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.
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.
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.
This list is a basic guide to some of the commonly used terms you'll hear during most real estate transactions. But whenever you don't quite understand something never be afraid to ask your real estate agent for clarification.
Ready to make your move in the Waterloo Region? Trust our experienced and dedicated team to guide you through the home buying or selling process with ease. Don't wait – contact Team Pinto today to schedule a consultation and let us help you achieve your real estate dreams! Call (519) 818-5445 or visit our website at teampinto.com to get started.