Buyers Guide

Glossary of Terms

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Buying or selling real estate can be a tricky process. There are hundreds of commonly used terms that could make up a language of their own. Here are some home buying terms that you will most likely encounter when you purchase your home.

Amortization period: 
The actual number of years it will take to pay back your mortgage loan.

Many mortgage products allow you to make payments against the principal on the anniversary of the mortgage.

The process of determining the lending value of a property.

Allows the buyer to take over the seller''s mortgage on the property.

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 Canadians. CMHC is one of two sources for high-ratio mortgage insurance.

Capped rate:
An interest rate with a pre-determined ceiling, usually associated with a variable-rate mortgage.

Closed mortgage:
Locks you into a specific payment schedule. A penalty usually applies if you repay the loan in full before the end of a closed term.

Closing costs:
Costs in addition to the purchase price of a property and which are payable on the closing date. Examples include legal fees, land transfer taxes, and disbursements.

Closing date:
The date on which the sale of a property becomes final and the buyer takes possession.

Conditional offer:
An offer subject to conditions such as loan approval.

Condominium fee:
 A fee paid by the condo owner that is allocated to pay building expenses.

Conventional mortgage: 
A loan issued for up to 75% of the property''s appraised value or purchase price, whichever is less.

Convertible mortgage:
A mortgage that you can change from short-term to long-term.

A legal document, signed by both parties, that transfers ownership.

Failure to abide by the terms of the mortgage; may result in legal action such as foreclosure.

A sum paid to the seller and held by a third party upon the offer to purchase.

Down payment:
The buyer''s cash payment toward the property; the difference between the purchase price and the mortgage loan.

The right to use another''s property for a specific purpose (e.g. a shared driveway).

A physical intrusion from one property to an adjoining property.

The difference between your home''s value and the money you owe against it.

GE Capital Mortgage Insurance Company of Canada, a private mortgage insurance company; one of two sources of high-ratio mortgage insurance.

Gross debt service ratio:
The percentage of a borrower''s monthly income to go to mortgage payments, utilities, taxes, and half of condo fees.

High-ratio mortgage:
 A mortgage that exceeds 75% of the home''s appraised value. (These mortgages must be insured for payment.)

Home insurance:
Insurance to cover both your home and its contents in the event of fire, theft, vandalism, etc. (also referred to as property insurance). This is different from mortgage life insurance, which pays the outstanding balance of your mortgage in full if you die.

The process of having a qualified home inspector identify potential strengths and weaknesses in the property you are interested in so that you may have a good idea of its functional condition.

Interest adjustment:
The amount of interest due between the date your mortgage starts and the date the first mortgage payment is calculated from. Avoid it by arranging to make your first mortgage payment exactly one payment period after your closing date.

Interest rate:
The value charged by the lender for the use of the lender''s money, expressed as a percentage.

Land transfer tax, deed tax, or property purchase tax:
A fee paid to the municipal and/or provincial government for the transferring of property from seller to buyer.

Legal fees and disbursements:
Some of the legal costs associated with the sale or purchase of a property. It''s in your best interest to engage the services of a real estate lawyer (or a notary in Quebec).

A claim for money owed by a property owner to a supplier or contractor.

Listing agreement: 
A legal agreement between the listing broker and the seller describing the property for sale and stating the services to be provided and the terms of payment. A commission is generally payable to the broker upon closing.

Lump-sum payment:
An extra payment that you make to reduce the amount of your mortgage. This is the same as pre-paying, which you cannot do if you have a closed mortgage.

Maturity date:
The end of the term of the loan, at which time you can pay off the mortgage or renew it.

Multiple Listing Service®, trademarks owned by the Canadian Real Estate Association. They are used in conjunction with a real estate database service, operated by local real estate boards, under which properties may be listed, purchased, or sold.

A loan that you take out in order to buy property. The collateral is the property itself.

Mortgage broker: 
A person or company offering mortgage products from several financial institutions.

Mortgage insurance:
Applies to high-ratio mortgages. It protects the lender against loss if the borrower is unable to repay the mortgage.

Mortgage life insurance:
Pays off the mortgage if the borrower dies so that his or her heirs do not assume the debt.

Mortgage rate:
The percentage interest that you pay on top of the loan principal.



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