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Real Estate Glossary

The real estate business has a language onto itself and some of the terms that are in widespread usage can be difficult for a neophyte to properly interpret. This Real Estate Glossary features many of the most common terms which you may encounter in the course of a real estate transaction and their relevant meanings.

A B C D E F G H I J G K L M N O P Q R S T U V W X Y Z

Absorption Rate The rate (speed) at which vacant space is either leased or sold to users in the marketplace. This rate is usually expressed in square feet per year or in the case of multi-family housing, in the number of units per year.

Acknowledgment A formal declaration before a duly authorized officer (such as a notary public) by a person who has executed an instrument that such execution is his own act and deed. An acknowledgment is necessary to entitle an instrument (with certain specific exceptions) to be recorded, to impart constructive notice of its contents and to entitle the instrument to be used as evidence without further proof. The certificate of acknowledgment is attached to the instrument or incorporated therein.

Acre A measure of land equal to 43,560 square feet.

Amortization The period of time required to reduce a debt to zero when payments are made regularly. Amortization periods are most often 15, 20, or 25 years long.

Anniversary Most lenders allow borrowers to make a payment on the anniversary of the mortgage. (For a mortgage assumed on June 1, a payment can be made every subsequent June 1 for the term of the mortgage.) It is applied against the principal and is a good way of reducing a loan.

Appraisal A process that determines the market value of a property.

Appraised Value An estimated value of a property that is completed by a certified appraiser for mortgage financing.

Approved Lender A lending institution authorized by the Government of Canada to make loans under the terms of the National Housing Act. Only Approved Lenders can negotiate mortgages that require mortgage insurance.

“As-Is” Condition

The acceptance by the buyer of the existing condition of the premises at the time that a sale is consummated. This would include any physical defects.

Assumption A legal document signed by a homebuyer that requires the buyer to assume responsibility for the obligations of a mortgage by the builder or original owner.

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Balanced Market Where demand for property equals the supply of available property. Sellers usually accept reasonable offers and houses generally sell in sufficient time periods. Prices remain stable and there is usually a good number of homes to choose from.

Balloon Payment A large principal payment that typically becomes due at the conclusion of the loan term. Generally, it reflects a loan amortized over a longer period than that of the term of the loan itself (i.e. payments based on a 25 year amortization with the principal balance due at the end of 5 years).

Bankrupt The condition or state of a person (individual, partnership, corporation, etc.) who is unable to repay it’s debts as they are, or become, due.

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.

Bridge Loan

A loan which enables a buyer to purchase a property, then allow for time to rehab and/or increase NOI prior to placement of permanent financing or enables buyer to get financing to make a down payment and pay closing costs before selling the present property. Also called “gap” financing. This type of financing is provided by real estate investment banks such as TD Bank.

Building Code The various laws set forth by the ruling municipality as to the end use of a certain piece of property and that dictate the criteria for design, materials and type of improvements allowed.

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.

Bullet Loan Any short-term, generally five to seven years, financing option that requires a balloon payment at the end of the term and anticipates that the loan will be refinanced in order to meet the balloon payment obligation. Essentially, should the refinancing not be available, often due to the property not performing as anticipated, the borrower is “shot” and the property is subject to foreclosure. An example of this is when a developer borrows to cover the costs of construction and carry-costs for a new building with the expectation that it would be replaced by long-term (or “permanent”) financing provided by an institutional investor once most of risk involved in construction and lease-up had been overcome resulting in an income-producing property.

Buyer’s Market When there is a higher number of homes to choose from than buyers in comparison. Prices of homes tend to be lower and they remain available for sale longer. Buyers usually have more leverage in negotiating a purchase.

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Capitalization Rate The rate that is considered a reasonable return on investment (on the basis of both the investor’s alternative investment possibilities and the risk of the investment). Used to determine and value real property through the capitalization process. Also called “free and clear return”.

Closed Mortgage A mortgage loan that has a locked-in payment schedule, which does not vary over the life of the closed term. A buyer who uses a closed mortgage will likely have to pay the lender a penalty if you fully repay the loan before the end of the closed term.

Closing Costs Costs, in addition to the purchase price of a home, such as legal fees, transfer fees, and disbursements, that are payable on the closing date. Closing costs typically range from 2%-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.

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 creates and sells mortgage loan insurance products.

Collateral Mortgage A mortgage that secures a loan by way of a promissory note. The money borrowed can be used to buy a property or can be used for another purpose, such as a home renovation or a vacation.

Commitment Letter / 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.

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.

Construction Loan A short-term, interim loan for financing the cost of construction. The lender advances funds to the builder at periodic intervals as work progresses. Typically a recourse loan to the borrower.

Construction Management The actual construction process is overseen by a qualified construction manager who ensures that the various stages of the construction process are completed in a timely and seamless fashion, from getting the construction permit to completion of the construction to the final walk-through of the completed premises with the buyer.

Cost Approach A method of appraising real property whereby the replacement cost of a structure is calculated using current costs of construction.

Conventional Mortgage 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.

Conveyancing The transfer of ownership of any property or real estate from one person to another.

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Debt Service Coverage Ratio (DSCR) The relationship between the annual net operating income (NOI) of a property and the annual debt service of the mortgage loan on the property. Both Lenders and Investors calculate this ratio to assist them in determining the likelihood of the property generating enough income to pay the mortgage payments. From the lender’s viewpoint, the higher the ratio, the better.

Debt Service The periodic payment (monthly, quarterly, or annually) necessary to pay the interest and principal on a loan which is being amortized over a longer term (usually 25-30 years).

Deed In Lieu Of Foreclosure A deed given by an owner/borrower to a lender to satisfy a mortgage debt and avoid foreclosure.

Deed A legal document, which is signed by both the vendor and the 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 A sum of money placed in trust by the purchaser when an Offer to Purchase is made. The real estate representative or lawyer holds the sum until the sale is closed, and then it is paid to the vendor.

Depreciation Spreading out the cost of a capital asset over its estimated useful life or a decrease in the usefulness, and therefore value, of real property improvements or other assets caused by deterioration or obsolescence.

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.

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Easement A right acquired for access to or over, or for the use of, another person’s land for a specific purpose, such as a driveway or public utilities.

Encroachment The intrusion of a structure which extends, without permission, over a property line, easement boundary or building setback line.

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 the home. 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.

Escalation Clause A clause in a lease which provides for the rent to be increased to reflect changes in expenses paid by the landlord such as real estate taxes, operating costs, etc. This may be accomplished by several means such as fixed periodic increases, increases tied to the Consumer Price Index or adjustments based on changes in expenses paid by the landlord in relation to a dollar stop or base year reference.

Exclusive Agency Listing A written agreement between a real estate broker and a property owner in which the owner promises to pay a fee or commission to the broker if specified real property is leased during the listing period. The broker need not be the procuring cause of the lease.

Expense Ratio A comparison of the operating expenses to potential gross income. This ratio can be compared over time and with that of other properties to determine the relative operating efficiency of the property considered.

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Fair Market Value The sale price at which a property would change hands between a willing buyer and willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts.

FHLI First Home Loan Insurance This is a CMHC product of particular interest to people looking for their first home. It allows qualified first-time buyers to purchase a home with as little as 5% down. In these cases, CMHC will insure mortgages of up to 95% of the home’s purchase price or the market value of the property, whichever is less. (Restrictions may apply. Contact your local lender.)

Finance Charge The amount paid for the privilege deferring payment of goods or services purchased, including any charges payable by the purchaser as a condition of the loan.

First Mortgage A mortgage which, by reason of its position, has priority over all other encumbrances. The holder of the first mortgage has a priority right to payment in the event of default.

Foreclosure A legal procedure in which the lender gets ownership of the property if the borrower defaults on the mortgage loan.

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General Contractor The prime contractor who contracts for the construction of an entire building or project, rather than just a portion of the work. The general contractor hires subcontractors, (e.g., plumbing, electrical, etc.), coordinates all work, and is responsible for payment to subcontractors.

Gross Debt Service Ratio The percentage of the borrower’s gross income that will be used for monthly payments of principal, interest, taxes, heating costs, and half of any condominium maintenance fees.

Gross Absorption A measure of the total square feet leased over a specified period of time with no consideration given to space vacated in the same geographic area during the same time period.

Gross Lease A lease in which the tenant pays a flat sum for rent out of which the landlord must pay all expenses such as taxes, insurance, maintenance, utilities, etc.

Guaranty Agreement whereby the guarantor undertakes collaterally to assure satisfaction of the debt of another or perform the obligation of another if and when the debtor fails to do so.

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Hard Cost The cost of actually constructing the improvements (i.e. construction costs).

High-Ratio Mortgage / Insured Mortgage Loan

A mortgage loan in excess of 75% of the lending value of the property. This type of mortgage must be insured – for example, by CMHC – against payment default.

Highest and Best Use The use of land or buildings which will bring the greatest economic return over a given time which is physically possible, appropriately supported, financially feasible.

Holdback An amount of money withheld by the lender during construction of a house to ensure that construction is satisfactory at every stage. A standard holdback is 10% of the total cost of the building project.

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Improvements In the context of leasing, the term typically refers to the improvements made to or inside a building but may include any permanent structure or other development, such as a street, sidewalks, utilities, etc.

Interest

The cost of borrowing money for a given period of time. 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 regular payments. This date is usually one payment period before regular mortgage payments begin. Interest due between the date the mortgage is advanced and the IAD is due on closing.

Interest Rate The rate at which you pay interest to the lender. For example, when the mortgage balance is $100,000, and the interest rate is 6 per cent, one single annual payment will include $6,000 interest. More frequent payments will result in different amounts.

Indirect Costs Development costs, other than material and labor costs which are directly related to the construction of improvements, including administrative and office expenses, commissions, architectural, engineering and financing costs.

Internal Rate of Return (IRR) The true annual rate of earnings on an investment. Equates the value of cash invested with cash returns. Considers the application of compound interest factors.

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Joint Venture An agreement by two or more individuals or entities to engage in a single project or undertaking. Joint ventures are used in real estate development as a means of raising capital and spreading risk. For all practical purposes a joint venture is similar to a general partnership. However, once the purpose of the joint venture has been accomplished, the entity ceases to exist.

Judgment The final decision of a court resolving a dispute and determining the rights and obligations of the parties. Money judgments, when recorded, become a lien on real property of the defendant.

Judgment Lien An encumbrance that arises by law when a judgment for the recovery of money attaches to the debtor’s real estate.

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Landlord’s Lien or Warrant A warrant from a landlord to levy upon a tenant’s personal property (e.g., furniture, etc.) and to sell this property at a public sale to compel payment of the rent or the observance of some other stipulation in the lease.

Lease An agreement whereby the owner of real property (i.e., landlord/lessor) gives the right of possession to another (i.e., tenant/lessee) for a specified period of time (i.e., term) and for a specified consideration (i.e., rent).

Lease Agreement The formal legal document entered into between a Landlord and a Tenant to reflect the terms of the negotiations between them; that is, the lease terms have been negotiated and agreed upon, and the agreement has been reduced to writing. It constitutes the entire agreement between the parties and sets forth their basic legal rights.

Lease Commencement Date

The date usually constitutes the commencement of the term of the Lease for all purposes, whether or not the tenant has actually taken possession so long as beneficial occupancy is possible. In reality, there could be other agreements, such as an Early Occupancy Agreement, which have an impact on this strict definition.

Leasehold Improvements Improvements made to the leased premises by or for a tenant. Generally, especially in new space, part of the negotiations will include in some detail the improvements to be made in the leased premises by Landlord.

Legal Description A geographical description identifying a parcel of land by government survey, metes and bounds, or lot numbers of a recorded plat including a description of any portion thereof that is subject to an easement or reservation.Letter Of Credit: A commitment by a bank or other person, made at the request of a customer, that the issuer will honor drafts or other demands for payment upon full compliance with the conditions specified in the letter of credit. Letters of credit are often used in place of cash deposited with the landlord in satisfying the security deposit provisions of a lease.

Letter Of Intent A preliminary agreement stating the proposed terms for a final contract. They can be “binding” or “non-binding”. This is the threshold issue in most litigation concerning letters of intent. The parties should always consult their respective legal counsel before signing any Letter of Intent.

Lending Value The purchase price or appraised value of a property, whichever is less.

Listing Agreement An agreement between the owner of a property and a real estate broker giving the broker the authorization to attempt to sell or lease the property at a certain price and terms in return for a commission, set fee or other form of compensation.

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 $25,000 on a home which costs $100,000 is 25%.

Lien (Mechanics) 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 statutes that vary from province to province. If the lien holder takes action within the prescribed time, the homeowner may be obliged to pay the amount claimed by the lien holder. Alternatively, the lien holder may force a sale of the property to pay off the debt.

Low Rise A building with fewer than 4 stories above ground level.

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Market Rent The rental income that a property would command on the open market with a landlord and a tenant ready and willing to consummate a lease in the ordinary course of business; indicated by the rents that landlords were willing to accept and tenants were willing to pay in recent lease transactions for comparable space.

Market Study A forecast of future demand for a certain type of real estate project that includes an estimate of the square footage that can be absorbed and the rents that can be charged. Also called “Marketability Study”.

Market Value The highest price a property would command in a competitive and open market under all conditions requisite to a fair sale with the buyer and seller each acting prudently and knowledgeably in the ordinary course of trade.

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

Mechanic’s Lien A claim created by state statutes for the purpose of securing priority of payment of the price and value of work performed and materials furnished in constructing, repairing or improving a building or other structure, and which attaches to the land as well as to the buildings and improvements thereon.

Mixed-Use Space within a building or project providing for more than one use (i.e., a loft or apartment project with retail, an apartment building with office space, an office building with retail space).

Mortgage Security for a loan to purchase property

It is the purchaser’s personal guarantee to repay the loan and a pledge of the property as security for the loan.

Mortgage Life Insurance Insurance to pay off your mortgage in full if you die. Many lenders offer this insurance and add the premium to your mortgage payments. However, you may want to compare rates for equivalent products from an insurance broker.

Mortgage Loan Insurance Insurance required by lenders for high-ratio mortgages (more than 75% of the purchase price). It is available from CMHC or a private insurer for a cost of between 0.5% and 3% of the amount of the mortgage.

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.

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Normal Wear and Tear The deterioration or loss in value caused by the tenant’s normal and reasonable use. In many leases the tenant is not responsible for “normal wear and tear”.

Net Worth A person’s total financial worth, calculated by subtracting total liabilities from assets.

NHA Premium Insurance required by lenders for high-ratio mortgages (more than 75% of the purchase price). It is available from CMHC or a private insurer for a cost of between 0.5% and 3% of the amount of the mortgage. The premium can be added to your mortgage loan and paid off as part of your regular mortgage payments, or paid off in a lump sum at the time of purchase to save interest charges on the premium itself.

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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.

Open Mortgage A type of mortgage loan where the borrower can make a partial or full payment of the principal amount at any time, without penalty.

Operating Expenses The actual costs associated with operating a property including maintenance, repairs, management, utilities, taxes and insurance. A landlord’s definition of operating expenses is likely to be quite broad, covering most aspects of operating the building.

Operating Expense Escalation Although there are many variations of operating expense escalation clauses, all are intended to adjust rents by reference to external standards such as published indexes, negotiated wage levels, or expenses related to the ownership and operation of buildings.

Option Agreement A document stipulating that, in exchange for a deposit, a specified individual is to be given the first chance to buy 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.

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Percentage Lease Refers to a provision of the lease calling for the landlord to be paid a percentage of the tenant’s gross sales as a component of rent. There is usually a base rent amount to which “percentage” rent is then added. This type of clause is most often found in retail leases.

Performance Bond A surety bond posted by a contractor guaranteeing full performance of a contract with the proceeds to be used to complete the contract or compensate for the owner’s loss in the event of nonperformance.

P.I.T. Principal, Interest, and Taxes – payments due on a regular basis under the terms of a 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).

Plat (Plat Map) Map of a specific area, such as a subdivision, which shows the boundaries of individual parcels of land (e.g. lots) together with streets and easements.

Portability An option available on a mortgage that enables the mortgagor to take their current mortgage loan with them to another property without penalty.

Pre-Approved Mortgage When a lender approves the potential mortgagor for a specified amount, based on how much money the lender is prepared to lend to the borrower. This allows buyers to shop for homes that they already know they can obtain financing for and not homes that are potentially too expensive, or out of the borrowers means to finance.

Preleased Refers to space in a proposed building that has been leased before the start of construction or in advance of the issuance of a Certificate of Occupancy.

Prime Tenant The major tenant in a building or, the major or anchor tenant in a shopping center serving to attract other, smaller tenants into adjacent space because of the customer traffic generated.

Prepayment Privileges Allows the borrower to make voluntary payments on the mortgage loan, in addition to the regular, scheduled mortgage payments.

Principal The amount of money borrowed.

Property Purchase or Land Transfer Tax A toll paid to the provincial and/or municipal government(s) for transferring property to the buyer from the seller.

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Raw Land Unimproved land that remains in its natural state.

Realtor® A trademark name for 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.

Real Property Land, and generally whatever is erected or affixed to the land, such as buildings, fences, and including light fixtures, plumbing and heating fixtures, or other items which would be personal property if not attached.

Refinance To pay off a mortgage or other registered encumbrance and arrange for a new mortgage, sometimes with a different lender.

Regular Mortgage With this type of mortgage, you pay between 10% and 25% of the cost of the home as a down payment. The remaining balance is the amount of the mortgage loan required. A high-ratio mortgage requires mortgage loan insurance. CMHC offers it for a premium of 0.5%-3% of the mortgage amount. This fee can be added to your mortgage payments or paid in full on closing.

Renewal Option A clause giving a tenant the right to extend the term of a lease, usually for a stated period of time and at a rent amount as provided for in the option language.

Renewal At the end of a mortgage term, the borrower re-negotiates the loan for a new term.

Rent Compensation or fee paid, usually periodically (i.e. monthly rent payments, for the occupancy and use of any rental property, land, buildings, equipment, etc.

Rent Commencement Date The date on which a tenant begins paying rent. The dynamics of a marketplace will dictate whether this date coincides with the lease commencement date or if it commences months later (i.e., in a weak market, the tenant may be granted several months free rent). It will never begin before the lease commencement date.

Rent-Up Period That period of time, following construction of a new building, when tenants are actively being sought and the project is approaching its stabilized occupancy.

Representation Agreement An agreement between the owner of a property and a real estate broker giving the broker the authorization to attempt to sell or lease the property at a certain price and terms in return for a commission, set fee or other form of compensation.

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Sale-Leaseback An arrangement by which the owner occupant of a property agrees to sell all or part of the property to an investor and then lease it back and continue to occupy space as a tenant. Although the lease technically follows the sale, both will have been agreed to as part of the same transaction.

Second Mortgage An additional mortgage on a property that already has a mortgage.

Seller’s Market More buyers are looking for homes than there are homes for sale. There is a smaller inventory of homes available for sale and many buyers looking to purchase. House prices generally increase and homes sell quickly.

Setback The distance from a curb, property line or other reference point, within which building is prohibited.

Site Analysis The study of a specific parcel of land which takes into account the surrounding area and is meant to determine its suitability for a specific use or purpose.

Site Development The installation of all necessary improvements, (i.e. installment of utilities, grading, etc.), made to a site before a building or project can be constructed upon such site.

Site Plan A detailed plan which depicts the location of improvements on a parcel of land which also contains all the information required by the zoning ordinance.

Slab The exposed wearing surface laid over the structural support beams of a building to form the floor(s) of the building or laid slab-on-grade in the case of a non-structural, ground level concrete slab.

Soft Cost That portion of an equity investment other than the actual cost of the improvements themselves (i.e. architectural and engineering fees, commissions, etc.) and which may be tax-deductible in the first year.

Special Assessment Any special charge levied against real property for public improvements (e.g., sidewalks, streets, water and sewer, etc.) that benefit the assessed property.

Specific Performance A requirement compelling one of the parties to perform or carry out the provisions of a contract into which he has entered.

Strip Mall Any shopping area, generally with common parking, comprised of a row of stores but smaller than the neighborhood center anchored by a grocery store.

Strata or Condominium Fee A payment made by all owners of condominiums or townhouses within a particular complex that is allocated to pay expenses such as maintenance, repairs and management costs.

Statement of Adjustment A balance sheet statement that indicates credits to the vendor – for example, the purchase price – and any prepaid taxes and credits to the buyer, such as the deposit, and the balance due on closing.

Subcontractor A contractor working under and being paid by the general contractor. Often a specialist in nature, such as an electrical contractor, cement contractor, etcSurface Rights: A right or easement granted with mineral rights, enabling the possessor of the mineral rights to drill or mine through the surface.

Survey A document that illustrates the property boundaries and measurements, specifies the location of buildings on the property, and indicates any easements or encroachments.

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Tax Base The assessed valuation of all the real property that lies within the jurisdiction of a taxing authority, which is then multiplied by the tax rate or mill levy to determine the amount of tax due.

Tax Lien A statutory lien, existing in favor of the state or municipality, for nonpayment of property taxes which attaches only to the property upon which the taxes are unpaid.

Tax roll A list or record containing the descriptions of all land parcels located within the county, the names of the owners or those receiving the tax bill, assessed values and tax amounts.

Tenant (Lessee) One who rents real estate from another and holds an estate by virtue of a lease.

Tenant Improvements Improvements made to the leased premises by or for a tenant. Generally, especially in new space, part of the negotiations will include in some detail the improvements to be made in the leased premises by the landlord.

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.

“Time Is Of The Essence” Means that performance by one party within the period specified in the contract is essential to require performance by the other party.

Title Insurance A policy issued by a title company after searching the title and which insures against loss resulting from defects of title to a specifically described parcel of real property, or from the enforcement of liens existing against it at the time the title policy is issued.

Title Search A review of all recorded documents affecting a specific piece of property to determine the present condition of title.

Title (freehold or leasehold) Legal possession A freehold title gives the holder ownership of land and buildings for an indefinite period of time. A leasehold title gives the holder a right to use and occupy land and buildings for a defined period of time. In a leasehold arrangement, actual ownership of the land, sometimes along with the buildings, remains with the landlord.

Total Debt Service Ratio (TDS) The percentage of gross annual income required to cover all payments for housing and all other debts, such as car payments.

Turn Key Project The construction of a project in which a third party, usually a developer or general contractor, is responsible for the total completion of a building (including construction and interior design) or, the construction of tenant improvements to the customized requirements and specifications of a future owner or tenant.

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Under Construction When construction has started but the Certificate of Occupancy has not yet been issued.

Under Contract A property for which the seller has accepted the buyer’s offer to purchase is referred to as being “under contract”. Generally, the prospective buyer is given a certain period of time in which to perform its due diligence and finalize financing arrangements. During the period of time the property is under contract, the seller is precluded from entertaining offers from other buyers.

Unencumbered Describes title to property that is free of liens and any other encumbrances. Free and clear.

Unimproved Land Most commonly refers to land without improvements or buildings but can also mean land in its natural state.

Use The specific purpose for which a parcel of land or a building is intended to be used or for which it has been designed or arranged.

Vacancy Factor The amount of gross revenue that pro forma income statements anticipate will be lost because of vacancies, often expressed as a percentage of the total rentable square footage available in a building or project.

Vacancy Rate The total amount of available space compared to the total inventory of space and expressed as a percentage. This is calculated by multiplying the vacant space times 100 and then dividing it by the total inventory.

Vacant Space Refers to existing tenant space currently being marketed for lease. This excludes space available for sublease.

Variance Refers to permission that allows a property owner to depart from the literal requirements of a zoning ordinance that, because of special circumstances, cause a unique hardship. Included would be such things as the particular physical surroundings, shape or topographical condition of the property and when compliance would result in a practical difficulty and would deprive the owner of the reasonable use of the property.

Variable-rate Mortgage A type of mortgage with fixed payments but fluctuating interest rates. The change in current interest rates doesn’t alter the amount of the mortgage payment, but determines how much of each payment is applied against the principal amount and how much goes to pay interest to the lender.

Vendor Take-Back Mortgage Mortgage financing arranged between the seller of the property and the buyer. Often this type of loan is a second mortgage, which the seller is willing to arrange at below market rates to allow the buyer to purchase the house. Most of these arrangements are not renewable or transferable to the next owner of the house.

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Zoning Bylaws Municipal or regional laws that specify or restrict land use.

 

 

Mortgage Glossary

The largest loan most people will ever have and it will indebt them for a significant portion of their lives, therefore anyone contemplating taking on a mortgage should have a clear understanding of the exact terms and conditions of the mortgage obligation.

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Additional interest: The amount sometimes charged by the bank when you prepay principal or renegotiate the terms of your mortgage. The amount compensates the bank for loss of revenue.

Amortization:

With a mortgage, the borrower agrees to pay back the amount borrowed over a period of time. This breaking of the loan into smaller parts to be paid back over uniform blocks of time is amortization.

Amortization period:

The actual number of years it will take to repay a mortgage in full. This period can be longer than the loan’s term. For example, a mortgage may have a five-year term and a 25-year amortization period.

Appraised value:

An estimate of the market value of the home and property that the borrower pledges as security for the mortgage. This value may be more or less than the purchase price of the property.

Assets: The things of value that you own, such as your home, car or summer home.

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Blended rate mortgage:

A mortgage that combines the amount the borrower owes under an existing mortgage with additional mortgage money required by the borrower. The interest rate for the new amount borrowed is a “blend” – or combination – of the interest rate of the old mortgage and the interest rate for the additional amount to be borrowed.

Blended mortgage payment: A regular instalment payment composed of both principal and interest in which part of the money received is applied toward the principal of the loan and part is put to pay the interest. This is the norm for mortgage payments.

Bridge financing: A loan made for a short term, to “bridge” (or cover) the time gap between completing the purchase of one property and finalizing arrangements to pay for it. The need for this type of financing often results from mismatched closing dates. More information

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CMHC/Canada Mortgage and Housing Corporation:

The Canada Mortgage and Housing Corporation is a federal Crown corporation that administers the National Housing Act. CMHC’s services include providing housing information and assistance to consumers and providing mortgage default insurance for high ratio mortgages.

Carrying costs: The expenses of living in and maintaining a home and property. This includes mortgage payments, property taxes, heating, repairs, maintenance fees, etc.

Closed mortgage: A mortgage that generally cannot be prepaid or renewed early unless the borrower is willing to pay an additional interest. Some lenders may allow limited prepayment privileges without additional interest.

Closing date: The date the purchase of the property becomes final and the new owner takes possession.

Collateral mortgage: A loan evidenced by a promissory note and backed by the collateral security of a mortgage on a property. The money borrowed is generally used for a purpose other than the purchase of a home, such as a vacation or home renovations.

Conventional mortgage: A first mortgage of up to 80% of the property’s appraised value or purchase price, whichever is lower.

Convertible mortgage: A mortgage that may be prepaid or changed to another term at any time. More information

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Deed:

A legal document that transfers and evidences ownership of the property to the buyer.

Default: Failure to repay an outstanding debt as agreed.

Deposit: A sum of cash that must be paid to the vendor by the purchaser. This money is a symbol of the purchaser’s commitment to buy. If the offer is accepted, the deposit is applied to the down payment. If the buyer turns down the offer later, the deposit may or may not be returned.

Down payment: The amount of money put forward by the buyer toward the purchase price of a home.

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Equity:

The difference between the price for which a property could be sold and the total amount owing on it.

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First mortgage:

A mortgage that is registered first against the property. This mortgage has to be paid first in the event of sale or default.

Fixed rate mortgage: A mortgage for which the rate of interest is fixed for the term, i.e., a set period of time. More information

Floating rate mortgage: Another name for variable rate mortgage.

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Gross debt service ratio:

The percentage of a borrower’s gross monthly income that can be used to pay housing costs, including the monthly mortgage payment (principal and interest), heating costs, property taxes and condominium fees (if applicable). The total should not be more than 32% of monthly gross income.

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High ratio mortgage:

A mortgage for more than 80% of either or both a property’s appraised value and its purchase price. In other words, the down payment amount is less than 20% of the purchase price/appraised value.

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Interest:

Interest is the cost of borrowing and is the amount paid on the money borrowed. It is represented as an annual percentage rate applicable to the mortgage.

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Liabilities:

What you owe, including taxes, mortgage, car loan and credit card balances.

Low Rate Fixed Closed Mortgage: This is a mortgage where prepayment is limited to 10+10 prepayment privileges and full repayment before maturity can only occur if the property is sold to an unrelated purchaser at fair market value. Mortgage Cash Account, Take a Break and Family Care options are not available on this mortgage.

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Maturity date:

The last day of the term of your mortgage agreement. The mortgage must be paid in full or renewed by this date.

Maximum rate: An alternative term for protected rate.

Mortgage: A mortgage is both a loan used to purchase or refinance a home and a security for the repayment of the loan.

Mortgage disability insurance: Insurance that pays your mortgage payments should you become ill or disabled and unable to work. More information

Mortgage default insurance: Government-backed or privately backed insurance protecting the lender against the borrower’s default on a high-ratio mortgage.

Mortgage life insurance: Insurance that pays off your mortgage debt in the event of your death. More information

Mortgage payment: The regular instalments made towards paying back the principal and paying interest on a mortgage.

Mortgagee: The lender.

Mortgagor: The borrower.

Multiple Listing Service (MLS): A computer-based system for relaying information to real-estate agents about properties for sale.

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Open mortgage:

A mortgage that can be prepaid or re-negotiated at any time without additional interest.

Open variable mortgage: A variable rate mortgage in which the interest rate varies with money market conditions. You may prepay or renegotiate an Open Variable mortgage at anytime without additional interest. More information

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Pre-approved mortgage:

A mortgage for a set maximum amount and interest rate that is arranged prior to the purchaser finding a house. Often arranged prior to shopping for a home, this option can help the purchaser establish an affordable price range. Also known as a pre-arranged mortgage. More information

Prepayment: Allows the borrower to prepay a portion or all of the principal mortgage balance, with or without penalty, ahead of schedule. This decreases the total amount of interest paid over the life of your mortgage. This option is typically restricted to specific amounts and times.

Prepayment Privileges: With Mortgage Prepayment Privileges, you can save thousands of dollars in interest costs by making small increases in your mortgage payments and prepaying some of the principal. More information

Principal: The amount initially borrowed under the mortgage.

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Rate (interest):

The annual percentage amount charged in return for borrowing funds.

Realtor: A real estate professional who is a member of a local real estate board and the Canadian Real Estate Association.

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Second mortgage:

A mortgage granted when there is already a mortgage registered against a property. If the borrower defaults and the property is sold, the second mortgage is paid after the first.

Security: Property, or assets, offered as backing for a loan. In the case of mortgages, the property being purchased or refinanced forms the security for the loan.

Survey: A document providing details of a property’s boundaries, measurements and structures. It also describes any easements, rights-of-way or encroachments made by either your property or by adjoining properties onto your property.

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Term:

The length of time a lender will lend mortgage funds to a borrower. Most mortgage terms run from six months to five years. Certain lenders may offer longer terms, e.g., 6, 7 or 10 years. After this period, the borrower can either repay the balance-the remaining principal plus interest-of the mortgage, or renew the mortgage for another term. The total length of a mortgage is usually made up of several terms.

Title: The legal evidence of ownership to a property.

Title search: A detailed examination of the registered title documents to ensure there are no liens or other encumbrances, or claims, on the property, and no question regarding the seller’s statement of ownership.

Total debt service (TDS) ratio: The percentage of a borrower’s gross (before tax) monthly income needed to cover payments for housing costs, including principal, interest, taxes, heating costs and condominium fees (if applicable), and all other debts and obligations, such as loans and credit cards. The total should not be more than 40% of gross monthly income.

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Variable Rate Mortgage (also known as a floating rate mortgage): A mortgage in which your monthly payments remain the same throughout the term but the amount applied towards the principal (amount initially borrowed under the mortgage) versus interest may change with fluctuations in Bank of Montreal’s Prime Rate. As a result, the amortization period may be longer than you selected if interest rates have risen since the start of the term, or shorter if interest rates have fallen since the start of the term. More information

Vendor:

The seller in a real estate transaction.

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Real Estate Abbreviations

These abbreviations are indeed in the English language and it serves neophyte buyers to familiarize themselves with the exact meanings of all these arcane alphabet soup abbreviations. Some of these abbreviations can vary from area to area so unfortunately they are not standardized.

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

A.K.A.

A horizontal duplex could be also known as a semi-detached.

APS

The Agreement of Purchase and Sale.

Apt

Apartment, an individual residential unit as part of a multi-unit structure.

Att

Attached, as an attached garage.

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B/I

Built-in, a term to indicate that a fixture or appliance is set into the structure itself.

B/I/DW

A Built-In Dishwasher.

Brdlm

Indicating installed wall to wall carpet or broadloom.

Bsbrd

Baseboard, as in baseboard heating units.

Bsmt

The Basement of a structure.

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CAC

Central Air Conditioning, also expressed as C/A.

CCA

The Capital Cost Allowance is the total amount allowed by Revenue Canada to be deducted from income taxes as an expenditure by an owner of a property that produces income

CMHC

The Canada Mortgage and Housing Corporation, a crown corporation which insures Canadian residential mortgage loans.

CPT

Carpet, but it can also refer to a Carport.

Cvac

A centralized vacuum cleaner system.

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Desig

A Designation that the property has heritage value and relevant restrictions.

DOM

Days On Market, or the number of days since the listing was first entered into the MLS system or launched as an exclusive listing.

DR

Dining Room

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ELFs

Electrical Lighting Fixtures which specifies strictly permanently attached lighting and does not include any plug in portable lamps.

ELV

Elevator.

Exp

Expired, to indicate a listing that is expired and no longer valid.

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FAG

Forced Air Gas as relates to a furnace or an entire heating system.

Fin

Finished as in a basement or attic which has been completed for habitation with wall, ceiling and floor treatments.

FP

Fireplace, sometimes also abbreviated to Fpl.

FRBO

For Rent By Owner

FSBO

For Sale By Owner

FXR

Fixer Upper, or a property which requires significant renovations.

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Gdo

Garage Door Opener also known as a GdoR, which is a remote unit garage door opener.

GB&E

Gas Burner & Equipment, a term to indicate a furnace of a heating system which functions on gas.

GDSR

The Gross Debt Service Ratio is the percentage of the total gross income which represents the maximum funding that a mortgage borrower is permitted to pay yearly in P.I.T.

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HE

High Efficiency as applied to various HVAC units for heating and cooling. Also known as Hi-Eff.

HVAC

Heating Venting and Air Conditioning, which is a term generally applied to the entire climate control installation of a structure.

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I/G

Inground as in a swimming pool, lap pool, or hot tub which is set into the grade of the land.

Incl

Included as in the case when a particular fixture which could be removed, is left in the property as part of the purchase price.

Insp

Inspection as in the case of a home inspection or an inspection report.

Irr

Irregular, indicating a lot shape which is not close to rectangular. Also referred to as Irreg.

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Jr

Junior, as in the case of a junior bedroom which is usually only suitable for a single bed.

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Kit

Kitchen

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L/A

A Listing Agent of a real estate property, and also known as L.A.

LB

Lockbox which is the secure container which real estate agents place the keys to a property, operable usually through a combination lock. Also referred to as Lbx.

LBO

Listing Broker Office, which is an abbreviation to indicate the main local office of the real estate company.

Lux

Luxury, usually applied in the sense of high end properties such as opulent condos and villa type residences.

Lvl

Level or storey of a structure.

LVR

Loan To Value Ratio is the total amount of a mortgage lien expressed as a percentage of the appraised value of a property.

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Mbr

Master Bedroom, which is generally the largest bedroom in the structure and often benefits from an en-suite bathroom.

Micro

Microwave oven on the property.

MnFlr

Main Floor of a structure, also expressed as Mn, MnFl, M/F, or Mn Floor.

Msrmnts

Measurements.

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Nr

Near

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O/Looks

Overlooks, as in a case where the living room overlooks the patio.

OWN

Owner Financing, or a form of creative financing such as a vendor take back mortgage which is extended directly by the seller.

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PC

Piece, as in the number of pieces which are in a bathroom.

P.I.T

Principal, Interest, and Property tax which is a common expression to indicate the total amount of basic costs a homeowner confronts. If it includes insurance, it is then expressed as PITI.

Pvt

Private, as in a backyard that offers a degree of privacy.

REA

Real Estate Agent or Realtor

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Qlty

Quality, to establish that the particular fixture or feature is of extraordinary quality above the usual standard for similar homes.

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Rec

Recreation as in a recreation room. Also expressed as Rec Room or Rec Rm.

Res

Residence to indicate a single family unit but also used in the case of Residential as in the case when a property is Zoned Residential.

R/I

Rough-In as in the cases where the space for a future fireplace or dishwasher is set into the wall structures but the unit itself has not yet been installed.

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SAT

Satellite Dish system installed on the property.

Sds

Sides as in sides on a park, or ravine, or school.

Sec

Security, and can refer to a multitude of features including an onsite installed security alarm system that may or may not be monitored, or an existing contract with a private security firm, or in the cases of condominiums and commercial properties it can refer to 24 hour a day onsite guards.

Sep

Separate as in a separate living room and dining room, or a separate kitchen and breakfast area.

Sky

Skylights in the roof of a property.

Sgwo

Sliding Glass Door Walkout.

SPIS

Seller Property Information Statement

Splt

Split Level or a structure which has stories which are offset at half height to each other.

Sqft

Square Feet, and you may also encounter Sqm for square metre.

Stv

Stove, which generally indicates a single unit kitchen range.

Sys

System, as in a security system or an air conditioning system.

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TBA

To Be Announced or Arranged as the possession date is negotiable or not yet firmly established.

TDSR

The Total Debt Service Ratio is thepercentage of their gross income which constitutes the maximal amount that a borrower is allowed to pay in P.I.T. yearly on all of their debts combined.

TLC

Tender Loving Care, as in the case when a particular property has been neglected and requires some minor renovations.

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UFFI

Urea Formaldehyde Foam Insulation.

Upgr

Upgraded, usually applied in the sense of a particular fixture or feature being fitted to the property that is above the usual standard for similar homes, such as upgraded cabinets or carpets.

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Vyl

Vinyl, usually indicating a type of floorcovering.

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With as in the case when a property comes with all the standard appliances.

Wdstv

Woodstove, or any form of vented, enclosed metal wood burning stove.

Win

Window as in the case of window coverings.

w/d

Washer and dryer on the premises.

W/I

Walk-In as in the case of a large closet which is referred to as a Walk-In closet.

W/L

Where Laid, which indicates that there is wall to wall carpeting or broadloom existing only in specific parts of the structure.

W/O

Walk-Out as in a basement apartment which walks out to a level ground entry.

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Xtra

Extra or additional fixture or feature.

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Yr

Year, and sometimes expressed as Yrly for yearly, or annual.

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ZLT

Zero Lot Line, which indicates a specific form of municipal zoning regulation allowing particular properties to place structures right up to the line separating it from the adjoining property.