Real Estate Glossary


Real Estate GlossaryAccredited Leasing Officer (ALO)
A specialization through the Real Estate Institute of Canada (REIC) that identifies qualified and competent leasing officers.

Accrued Depreciation
The total loss in value of a building due to any cause.

Additional Deposit
The cash that is added to the initial deposit. The amount is to be noted on the Purchase Contract.

Changes or adaptations made in real estate, for example, the amount of taxes owed as of the Completion Day. Adjustments are to be noted on the Purchase Contract.

Agency is the legal relationship which exists between the client and the brokerage, the agent. The essence of the agency relationship is that the agent has the authority to represent the client in dealings with others. Agents are obligated to protect and promote the interests of their clients as they would their own and also owe certain fiduciary duties to their clients.

The number of years it takes to repay the entire amount of a mortgage. This can be well in excess of the loan's term. For example, mortgages often have five-year terms but 25-year amortization periods.

An estimate of a property's market value, used by lenders in determining the amount of the mortgage.

The increase in a property's value over time.

The number of monthly payments due under a mortgage plus interest on these payments. A person said to be "in arrears" is behind on his or her payments.

The value of a property set by the local municipality, for the purposes of calculating property tax.

The method or manner by which a right or contract is transferred from one person (the assignor) to another (the assignee).

Assumable Mortgage
A mortgage held on a property by the seller that can be taken over by the buyer, who then accepts responsibility for making the mortgage payments.

Balloon Mortgage Top
mortgage amortized over a number of years but requiring the entire principal balance to be paid at a certain time, short of the full amortization period.

Base Point
This is equal to 1/100 of 1%.

Blended Mortgage Payments
Equal or regular mortgage payments, consisting of both a principal and an interest component. With each successive payment, the amount applied to interest decreases and the amount applied to the principal increases, although the total payment doesn't change. (Exception: see Variable-Rate Mortgages.)

Bridge Financing
Financing to help a buyer bridge the time gap between the closing date on the purchase of a new home and the closing date on the sale of his/her current home. Sometimes referred to as "interim financing" or same day closing.

A person who legally trades in real estate for another, for compensation.

When the seller reduces the interest rate on a mortgage by paying the difference between the reduced rate and market rate directly to the lender, or to the purchaser, in one lump sum or monthly installments.

Canadian Real Estate Association (CREA) Top
An umbrella organization whose members include real estate practitioners from the ten provincial associations, the Yukon territory and 116 real estate boards across Canada.

Capital Gain or Loss
The difference between the basis price (cost plus purchase expenses)of a capital asset and its sales price.

Movable possessions, such as furniture, personal possessions, etc. A furnace, before it is installed, is a movable possession. Once installed, it is not.

Closed Mortgage
A mortgage agreement which does not provide for prepayment prior to maturity. A lender may permit prepayment under certain circumstances but will levy a prepayment charge for doing so.

The real estate transaction's completion, when the parties involved agree that all legal and financial obligations have been met, and the deed to the property is transferred from the seller to the buyer.

Closing Costs
Expenses in addition to the purchase price for buying and selling a property.

Closing Date
The date on which the title and keys to the property are transferred from the seller to the buyer and the money is paid.

Canada Mortgage and Housing Corporation, which administers the National Housing Act (NHA), and provides for the insuring of mortgages made by an approved lender under a variety of programs. CMHC normally insures "high-ratio" loans; that is loans where the ratio of debt (financing) to equity (down payment) is over 75%.

Additional security pledged for the payment of a debt.

Collateral Mortgage
A loan backed by a promissory note and the security of a mortgage on a property. The money borrowed may be used for the purchase of the property itself or for another purpose, such as home renovations or a vacation.

Commitment Letter
A contract issued to the borrower by a lender, reciting the basic terms of an offer to a mortgage. In order to be binding on all parties, the borrower must sign the commitment to the lender.

Common Elements
The portions of a condominium development owned in common (shared) by the unit owners.

A form of ownership in which the owner has title to a condo unit and also owns a share in the common elements (such as elevators and hallways, and perhaps the land).

Condominium Board
The governing body of the condominium corporation, elected at the annual general meeting (AGM) of the corporation.

Conventional Mortgage
A mortgage loan which does not exceed 75% of the appraised value or purchase price of the property, whichever is the lesser of the two. Mortgages that exceed this limit must be insured by CMHC or MICC.

One party's written a response to the other party's offer during the negotiation of a real estate purchase between buyer and seller.

The transfer of property, or title to the property, from one party to another.

Creative Financing
Any form of financing other than a traditional mortgage calling for recurring payments of the same amount each month. Creative alternatives include a balloon, buy-down, graduated payment, and vendor-take-back mortgages.

Debt Service Top
Cost of paying interest for use of mortgage money.

Debt Service Ratio
The percentage of a borrower's gross income that can be used for housing costs, including mortgage payment and taxes (and condominium fees, when applicable).

This document conveys the title of the property to the purchaser. Different terminology may be used in different provincial jurisdictions.

Failure to repay as agreed. To fail to pay an outstanding debt (ie. mortgage).

Money or other consideration of value given as pledge for the fulfillment of a contract or agreement.

A document executed by the mortgagee (lender) and given to the mortgagor (borrower) when the loan is repaid in full. This is a legal document confirming full repayment of the mortgage.

Discounted Mortgage
The selling of a mortgage to another party at a discount or an amount less than the face value of the mortgage.

Down Payment
The difference between a property's purchase price and the amount financed.

Easement Top
A legal right to use or cross (right-of-way) another person's land for limited purposed. A common example is a utility company's right to run wires or lay pipe across a property.

An intrusion onto an adjoining property. A neighbour's fence, storage shed, or overhanging roofline that partially (or even fully) intrude onto your property are examples of encroachments.

A legal claim registered against a property. The claim does not necessarily prevent the property from being transferred but may affect the property's value. Examples of encumbrances are liens, judgments, rights of way, easements, leases and restrictive covenants. Mortgages are also considered to be encumbrances.

A borrower's equity in a property, if the value of the property, when sold, is more than the value of all mortgage debts or encumbrances. The amount of the equity is the difference between the value of the property and the value of the debts. If the value of the debts is more than the value of the property, then it is said that the owner has no equity in the property.

Equity Line of Credit
A line of credit granted by lenders and secured by the equity in a home. Homeowners may borrow up to the maximum allowed, which is usually 75% of the homes market value, less any outstanding loans. In many instances, the monthly repayment is scheduled for interest only, with the entire principal balance due at the end of the stated term.

Equity Return
The percentage ratio between your equity in the property and the total of cash flow plus mortgage principal reduction.

Estoppel Certificate
A written statement of a condominium unit's current financial and legal status.

A legal proceeding by a landlord to recover possession of real property.

A person or a corporate entity or any other type of organization named in a will to carry out its provisions.

First Mortgage Top
The first security registered on a property, which has first claim on the asset in the event of a default. Additional mortgages secured against the property are "secondary" to the first mortgage.

Fixed-Rate Mortgage
A mortgage loan for which the rate of interest is fixed for a specific period of time (the term). If the borrower pays off the mortgage in part or in full earlier than the term, there is usually a penalty. This type of mortgage is usually offered at a lower rate than an open mortgage.

A legal process is most often referred to as the foreclosure process by which the lender takes possession and ownership of a property when the borrower doesn't meet ("defaults on") the mortgage obligations.

For Sale by Owner

Gross Debt Service Ratio (GDS) Top
The percentage of gross annual income required to cover payments associated with the housing (mortgage principal and interest, taxes, secondary financing, space heating, and 50% of condominium fees, if applicable). Most lenders prefer that the GDS be no more than 30%.

High-ratio Mortgage Top
This is a mortgage which finances between 75% to 100% of purchase price or appraised value of the home, whichever is lower. Must be insured by CMHC or MICC. In the event that there is not sufficient value in the property to pay off the mortgage, the lender is insured and therefore paid for the shortfall.

Income, Gross Top
Income or cash flow before expenses.

Income, Net
Income or cash flow after expenses (but generally before income tax).

The cost of borrowing money.

Interest-Only Loan
Any loan in which monthly payments represent only the interest. The principal balance will become due at the expiration of an agreed-upon term of years.

Interim Financing
The temporary financing by a lender during the construction of real property for resale, or while other funds are due in. Sometimes referred to as "bridge financing."

Incapable of being recalled or revoked; unchangeable; unalterable.

Joint Tenancy Top
A form of ownership in which two or more individuals (often spouses) have an equal share in the ownership of a property. In the event of one owner's death, his or her share is automatically transferred to the surviving owner(s), apart from the deceased's will.

Decree of a court declaring that one individual is indebted to another, and fixing the amount of such indebtedness.

Landlord Top

One who rents property to a tenant.

A contract whereby, for a consideration, usually termed rent, one who is entitled to the possession of real property transfers such rights to another for life, for a term of years, or at will.

Lease with Option to Buy
A landlord may rent or lease a property to a tenant and grant him an option to purchase the property within a specified time in the future under certain conditions and with a predetermined price or formula for determining a price

Legal Description
Identification of a property that is recognized by law, that identifies that property from all others.

Lending Value
The lesser of the purchase price or appraised value of the property.

Controlling a large asset with a relatively small amount of cash. In real estate, $25,000 down payment (or less) can be used to purchase (control) a $100,000 home, for example.

What you owe.
LIEN - Any legal claim against a property, filed to ensure payment of a debt.

Limited Partnership
An investment group in which one partner serves as the general partner and the others as limited partners. The general partner bears all the financial responsibility and management of the investment. The limited partners are obligated only to the extent of their original investment plus possible personal guarantees.

Listing Agreement
The contract between the listing broker and an owner, authorizing the REALTOR to facilitate the sale or lease of a property.

Listing Broker
The REALTOR who signs a contract with an owner to sell the property.

Loan-to-Value Ratio
The ratio of the loan to the appraised value or purchase price of the property, whichever is less, expressed as a percentage.

Market Value Top
The highest price a buyer, willing, but not compelled to buy, would pay, and the lowest price a seller, willing, but not compelled to sell, would accept.

Maturity Date
The date on which the term of the mortgage expires; the mortgage must be either paid out in full or renegotiated for another term. When applying for another term, you are generally required to pay a renewal fee.

A contract between a borrower and a lender. The borrower pledges a property as security to guarantee repayment of the mortgage debt. It is a registered charge on your property and should be removed when the loan has been completely repaid.

Mortgage Broker
A licensed individual who, for a fee, brings together a borrower in search of a mortgage and a lender willing to issue that mortgage.

An individual or institutional lender that holds a mortgage on a property as security for a loan.

A person who offers a mortgage on property in exchange for cash consideration.

Mortgage Insurance
Government-backed or private-backed insurance protecting the lender against the borrower's default on high-ratio (and other types of) mortgages.

Mortgage Life Insurance
Insurance that pays off the mortgage debt, should the insured borrower die.

Mortgage Payment
The regular installments made towards paying back the principal and interest on a mortgage.

Mortgage Term
The length of time a lender will loan mortgage funds to a borrower. Most mortgage terms run from six months to five years, after which the borrower can either repay the balance (remaining principal) of the mortgage or renegotiate the mortgage for another term.

Multiple Listing System (MLS®)
A system licensed to member real estate boards by CREA. Used to compile and disseminate information by publication and computer concerning a given property to a large number of agents and brokers.

Offer to Purchase Top
A formal, legal agreement which offers a certain price for a specified real property. The offer may be firm (no conditions attached) or conditional (certain conditions must be fulfilled). Once the offer is accepted it becomes an "agreement of purchase and sale."

Open Mortgage
A mortgage that can be prepaid or renegotiated at any time and in any amount without penalty.

Option Agreement
A contract with consideration, given to a purchaser of a property, allowing the purchaser the right to purchase at a future date. If he chooses not to purchase, he forfeits his deposit to the seller.

Owner Financing
This agreement between the seller and the purchaser is an alternative to a mortgage for financing the purchase of real property. Under this type of arrangement the seller of the property finances the purchase rather than a lending institution. Once the agreement is made the purchaser can possess the property but legal title to the property remains with the seller until the purchaser completes making payments to the seller.

Partially Open Mortgage Top
(Also called a "partially closed" mortgage.) Allows the borrower to prepay a specific portion of the mortgage principal at certain times with or without penalty.

Principal and interest due on a mortgage.

Principal, interest and taxes.

Discount charges imposed by lenders to raise the yields on their loans. One (1) point equals on (1%)percent of the loan amount.

A mortgage feature that allows borrowers to take their mortgage with them without penalty when they sell their present home and buy another one.

Possession Date
The date that you actually get possession of the real estate purchase.

Prepayment Clause
An agreement which allows the mortgagor to make payments over and above the regular agreed-upon payments; for example, reducing the principal amount of the mortgage by up to 20% annually.

Prepayment Penalty
A fee charged by the lender when the borrower prepays all or a portion of a mortgage loan more quickly than provided for in the mortgage agreement.

The mortgage amount initially borrowed, or the portion still owing on the mortgage. Interest is calculated on the principal amount.

Promissory Note
An unconditional promise to pay on demand or by a fixed date a certain amount of money.

Quit Claim Top
A full release of a right to property from one person to another

Rate (Interest) Top
The return the lender receives for advancing the mortgage funds required by the borrower to purchase a property.

Real Property
Sometimes called reality. This includes land and items attached to land such as buildings, fences, etc.

Real Estate Professionals who are members of a local real estate board and the Canadian Real Estate Association. Only these professionals can call themselves REALTORS.

Real Estate Institute of Canada (REIC)
Educates and certifies real estate practitioners in order to establish, maintain and promote professional standards of practice in real estate related occupations.

To pay off (discharge) a mortgage and any other registered encumbrances and arrange for a new mortgage with the same lender or with a different lender. Usually at a lower interest rate, to replace the existing mortgage

Registered Encumbrances
Legal claims against the real property. Debts for which the property was pledged as security.

Release of Covenant
A release was given to the borrower of a property that has been sold to a new buyer who is acceptable to the lender. This release is usually given after the new borrower has signed an assumption agreement.

To extend a mortgage agreement with the same lender for another term. The length of the term and the conditions (such as the rate of interest) may be changed.

Reserve Fund
The portion of a condominium maintenance fee that is set aside to cover major repair and replacement costs.

Residential Tenancies Act
Provincial legislation that applies to the rental of residences such as houses, suites, apartments and rooming houses.

Right of Way
A form of easement, usually to allow public passage over private land or to allow municipalities and power companies the right to lay down and maintain sewers, gas lines, etc.

Second Mortgage Top
A second financing arrangement, in addition to the first mortgage, also secured by the property. Second mortgages are usually issued at a higher interest rate and for a shorter term than the first mortgage. In case of default, the first mortgage is paid before the second mortgage from the proceeds of the sale of the property.

Selling Broker
The REALTOR who actually finds the buyer.

Seller Financing
Refers to the owner of a property who agrees to carry a mortgage on the property that he or she is selling, so that the buyer doesn't have to obtain any or all of the financing from another source or lending institution.

Semi-Annual Compounding
A compounding method in which one-half of the stated annual rate is assessed against the outstanding balance of a loan. This is a common form of interest calculation for mortgages.

Split Funding
A technique whereby an investor offers a small amount of cash to close the deal with the balance due at a later date in a form other than extended monthly payments.

Subordination Clause
A clause in a mortgage that gives priority to a mortgage taken out at a later date. The seller agrees to go into a second, third or fourth position allowing you to obtain new financing senior to their lien without paying them off from the proceeds.

Substitution of Collateral
Taking an existing mortgage on one property and transferring it to another.

A document that illustrates the exact quantity of land, the position of major structures on that property, any registered or visible easements or rights-of-way on the property, any building setback requirements or zoning compliances or any encroachments.

Take-Back Mortgage Top
See Vendor-Take-Back Mortgage.

Tax Shelter
The tax write-off possible through the depreciation benefits available on investment real estate ownership.

Tenancy at Will
A license to use or occupy lands and tenements at the will of the owner.

The length of time which a mortgage agreement covers. Payments made may not fully repay the outstanding principal by the end of the term because the amortization period is longer. The term is usually from six months to ten years.

A document indicating the current state of the title, such as easements, covenants, liens, and any other defects. The title report may not describe the chain of title.

Title Company
A firm that examines title to real estate and/or issues title insurance.

Title Insurance
An insurance policy usually issued at the time of closing insuring against any title defects which could render the title unmarketable.

Title Search
A detailed examination of the ownership documents to ensure there are no liens or other encumbrances on the property, and no questions regarding the seller's ownership claim.

Total Debt Service Ratio (TDS)
The percentage of gross annual income required to cover payments associated with housing and all other debts and obligations, such as payments on a car loan. Most lenders prefer the TDS not to exceed 40%.

Transfer of Charge
Assignment of a mortgage under the Land Titles System.

Trust Account
The separate account in which a lawyer or real estate broker holds funds until the real estate closing takes place, in accordance with the Real Estate Act.

One who creates a trust.

Unattached Goods Top
Moveable personal property that goes with the seller (also known as a chattel).

A term used to describe the individual home or apartment held by the owner of a condominium development.

Variable-Rate Mortgage Top
A mortgage for which payments are fixed, but whose interest rate changes in relation to fluctuating market interest rates. If market rates go up, a larger portion of the payment goes to interest. If rates go down, a large portion of the payment is applied to the principal.

Vendor Take Back
Where the seller (vendor) of a property provides some or the entire mortgage financing in order to sell the property. Also referred to as "vendor financing."

Weekly Payments Top
Mortgage payments made weekly or 52 times per year.

Wraparound Mortgage
Sometimes called an all-inclusive mortgage. A mortgage that includes any existing mortgages on the property. The buyer makes one large payment on the wraparound and the seller continues making the existing mortgage payments out of that payment.

Zoning Regulation Top
Specified limitation on the use of land and construction and use of building in a defined area of a municipality. For example, you cannot build a duplex on an area zoned for single-family dwellings.

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