Understanding the Real Estate Language

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Understanding the Real Estate Language

The day has finally come and you have decided to enter the world of real estate. Maybe you have chosen to sell your home or maybe you are looking to purchase an additional property. In both cases you will need the assistance of a seasoned real estate representative. This individual will meet with you and discuss all aspects of real estate; buying, selling, mortgages, investing etc.

What does it all mean? All the terms a sales representative will mention can be overwhelming if you don’t understand the “real estate language”. Being familiar with these terms can turn a buyer/seller from being nervous to confident.

Here is a list of the most commonly used real estate terms and their definitions:

A
Amortization
The number of years a borrower is scheduled to repay the entire amount of a mortgage.

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

Appreciation
The increase of a property’s value over time.

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

Average Price
The average price of all home sales over a given period calculated as total dollar volume divided by total unit sales.

B
Balanced Market
This is generally assumed to be when the months of inventory is between 5 and 7. In general, a balanced market results in home prices remaining relatively stable.

Bank of Canada Overnight Target Rate
The target level interest rate set by the Bank of Canada at which major financial institutions borrow and lend one-day (or “overnight”) funds among themselves.

Benchmark Property or Home Price
A property or home price against which other properties can be evaluated.

Brokerage
A real estate company under which an individual is licensed.

Buyer’s Market
A housing market is typically characterized as a “buyers’ market” when there is an excess of supply over demand for homes. This is generally assumed to be when the months of inventory is between 7 and 10.

C
Carrying Cost
Financial and operational expense associated with an investment. For example, the carrying cost of an insured mortgage would include the monthly mortgage payment as well as CMHC mortgage insurance charges.

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

Condominium
Shared ownership in property. Owners have title (ownership) to individual units and a proportionate share in the common elements.

Consumer Price Index (CPI)
A measure that examines the weighted average of prices of consumer goods and services, such as transportation, food and medical care, calculated by averaging price changes for each item.

Conventional Mortgage
A mortgage loan that does not exceed 80 per cent of the lending value of the property.

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

D
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).

Down Payment
The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.

E
Equity
The difference between the price for which a property can be sold and the mortgage(s) on the property. Equity is the owner’s stake in the property.

F
FSBO or For Sale By Owner
The process of selling real estate without the representation of a real estate brokerage.

G
Gross Debt Service Ratio
The ratio of housing costs (including mortgage payments, taxes, heating costs, condominium and other fees, if applicable) to gross monthly income. A general rule applied by mortgage lenders is that this ratio should not exceed 32 per cent.

Gross Domestic Product
The monetary value of all the finished goods and services produced within a country’s borders in a specific time period.

Grow Op
A marijuana-growing operation, usually located in a house.

H
High-Ratio Mortgage
A mortgage that exceeds 80 per cent of the loan-to-value ratio; must be insured by either the Canada Mortgage and Housing Corporation or a private insurer to protect the lender against default by the borrower who has less equity invested in the property.

HST – Harmonized Sales Tax
The tax created as a combination of the Goods and Services Tax (GST) and the Property Sales Tax (PST), which is 13 per cent in Ontario.

I
Inflation
A rise in the general level of prices of goods and services in an economy over a period of time.

Interest
The cost of borrowing money.

L
Lien
Any legal claim against a property, filed to ensure payment of a debt.

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.

Land Transfer Tax
When you acquire land or a beneficial interest in land, you pay land transfer tax to the province when the transaction closes. Land transfer tax is normally based on the amount paid for the land, in addition to the amount remaining on any mortgage or debt assumed as part of the arrangement to buy the land. Click here for details on the land transfer tax calculator – https://getbenczik.com/land-transfer-tax-calculator/

M
Mortgage
A contract between a borrower and a lender. The borrower pledges a property as security to guarantee repayment of the mortgage debt. Lenders consider both the property (security) and the financial worth of the borrower (covenant) in deciding on a mortgage loan. Click here to calculate the mortgage payments for you home.

Mortgage Broker
A person or company having contacts with financial institutions or individuals wishing to invest in mortgages.

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

Mortgage Insurer
In Canada, high-ratio mortgages (those representing greater than 80 per cent of the property value) must be insured against default by either CMHC or private insurers. The borrower must arrange and pay for the insurance, which protects the lender against default.

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

Mortgage Prepayment Penalty
Is a fee paid by the borrower to the lender in exchange for being permitted to break a contract (a mortgage agreement); usually three months’ interest, but it can be a higher or it can be the equivalent of the loss of interest to the lender.

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 Service® (MLS®)
A co-operative selling system for relaying information to REALTORS® about properties for sale.

Months of Inventory
Calculated by taking the current number of active listings and dividing it by the average number of monthly sales during a given period. This calculation is used to determine the type of market (buyer, seller or balanced).

P
Prime Rate
The lowest rate of interest at which money may be borrowed commercially.

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

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

RECO or Real Estate Council of Ontario
A not-for-profit corporation that regulates the trade of real estate in Ontario in the public interest. On behalf of the Ontario government, RECO administers and enforces the Real Estate and Business Brokers Act and its regulations.

REALTOR®
A real estate professional who is a member of a local real estate board and the Canadian Real Estate Association (CREA). Only these professionals can call themselves REALTORS®.

Refinancing
The process of obtaining a new mortgage, usually at a lower interest rate, to replace the existing mortgage.

S
Seller’s Market
A housing market is generally characterized as a “sellers’ market” when there is an excess of demand for homes over current supply as measured by active or new listings. This is generally assumed to be when the months of inventory is between 1 and 5.

T
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.

Term Mortgage
A non-amortizing mortgage under which the principal is paid in its entirety upon the maturity date. Sometimes called a straight loan.

Title
The legal evidence of ownership of a property.

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
The maximum percentage of a borrower’s income that a lender will consider for all debt repayment (other loans and credit cards, etc.) including a mortgage.

U
Unit
Term used to describe the individual home or apartment held by the owner within a condominium development.

V
Variable-Rate Mortgage
A mortgage for which payments are fixed, but whose interest rate changes in relationship 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.

Y
Year-to-Date
A period, starting from the beginning of the current year, and continuing up to the present day.

Z
Zoning Regulations
Strict guidelines set and enforced by municipal governments regulating how a property may or may not be used.

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