So you are thinking of making that step to being a home owner. Congratulations! Education is key and the more familiar you are with the process the better. Here are a number of terms you will come across as you embark on the journey to becoming a home owner. - Amortization:
- Length of time over which the debt will be repaid.
- Appraisal:
- Process for estimating the market value of a property.
- Appraiser:
- Certified professional who carries out an appraisal.
- Appreciation:
- The increase in value of something because it is worth more now than when you bought it.
- Approved lender:
- A lending institution designated as an approved lender by CMHC under the National Housing Act. Only Approved Lenders may qualify for CMHC Loan Insurance.
- Assumption agreement:
- A legal document signed by a homebuyer that requires them to assume responsibility for the obligations of a mortgage by the builder or the previous owner.
- 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.
- Builder:
- A person or company that builds homes.
- Certificate of status:
- Also called an Estoppel certificate, it outlines a condominium corporation's financial and legal state. Fees may vary and may be capped by law (does not apply in Quebec).
- Closed mortgage:
- In some cases, a closed mortgage cannot be paid off, in whole or in part, before the end of its term. In other cases, the lender may allow for partial prepayment in the form of an increased mortgage payment or a lump sum prepayment. However, any prepayment made above stipulated allowances may incur penalty charges.
- Closing costs:
- Costs in addition to the purchase price of the home, such as legal fees, transfer fees and disbursements, that are payable on closing day. They range from 1.5% to 4% of a home’s selling price.
- Closing day:
- Date on which the sale of the property becomes final and the new owner takes title to the home.
- 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 develops and sells mortgage loan insurance products.
- CMHC insurance premiums:
- When a home buyer takes out a mortgage loan with less than a 20% down payment, an insurance premium is paid to CMHC, and a mortgage loan insurance policy is issued to the lender. The CMHC Mortgage Loan Insurance premium is calculated as a percentage of the loan and is based on a number of factors such as the purpose of the property (owner occupied or rental), the type of loan (i.e. purchase/construction or refinance loan), the ability of a self-employed borrower to supply income verification, and the size of your down payment (i.e. the higher the percentage of the total house price/value that you borrow, the higher percentage you will pay insurance premiums).
- Commitment letter (or Mortgage Approval):
- Written notification from the mortgage lender to the borrower that approves the advancement of a specified amount of mortgage funds under specified conditions.
- Compound interest:
- Interest calculated on both the principal and the accrued interest.
- Conditional offer:
- An Offer to Purchase that is subject to specified conditions, for example, the arrangement of a mortgage. There is usually a stipulated time limit within which the specified conditions must be met.
- Condominium (or strata):
- You own the unit you live in (eg: highrise or lowrise, or a townhouse) and share ownership rights for the common areas of the building along with the development’s other owners.
- Contractor:
- A person responsible for overall construction of a home, including buying, scheduling, workmanship, and management of subcontractors and suppliers.
- Conventional mortgage:
- A mortgage loan up to a maximum of 80% of the lending value of the property. Typically, the lending value is the lesser of the purchase price and market value of the property. Mortgage insurance is usually not required for this type of mortgage.
- Counteroffer:
- If, for example, your original offer to the vendor is not accepted, the vendor may counteroffer. This means that the vendor has amended something from your original offer, such as the price or closing date. As this new offer varies the terms of the original offer, this rejects the original offer. If a counteroffer is presented, the individual has a specified amount of time to accept or reject.
- Credit bureau:
- A company that collects information from various sources and provides credit information on a person’s borrowing and bill paying habits to help lenders assess whether or not to lend money to the person.
- Credit history or Credit Report:
- The main report a lender uses to determine your creditworthiness. It includes information about your ability to handle your debt obligations and your current outstanding obligations.
- Curb appeal:
- How attractive the home looks from the street. A home with good curb appeal will have attractive landscaping and a well-maintained exterior.
- Deed:
- A legal document that transfers ownership in the real property to the purchaser. This is often called a “Transfer. This document is registered as evidence of ownership.
- Default on payment:
- Failure to make a mortgage payment in accordance with the mortgage document.
- Delinquency:
- Failing to make a mortgage payment on time.
- Deposit:
- Money placed in trust by the purchaser when an Offer to Purchase is made. The sum is held by the real estate representative or lawyer/notary until the sale is closed and then it is paid to the vendor.
- Depreciation:
- The decrease in value of something because it is now worth less than when you bought it.
- Down payment:
- The portion of the home price that is not financed by the mortgage loan. The buyer must pay the down payment from his/her own funds or other eligible sources before securing a mortgage.
- Duplex:
- A duplex is a building containing two single-family homes, located one above the other.
- Easement:
- An interest in land owned by another person that benefits the person who has the easement, for a specific limited purpose (i.e. right of way permitting passage over a particular strip of land) such as with public utilities.
- Equity:
- The difference between the price for which a home could be sold and the total debts registered against it. Equity usually increases as the mortgage is reduced through regular payments. Market values and improvements to the property may also affect equity.
- Estoppel certificate:
- Also called a certificate of status, it is a certificate that outlines a condominium corporation's financial and legal state. Fees may vary and may be capped by law (does not apply in Quebec).
- FlexHousing™:
- A housing concept that incorporates, at the design and construction stage, the ability to make future changes easily and with minimum expense, to meet the evolving needs of its occupants.
- Foreclosure:
- A legal process where the lender takes possession of your property and sells it to cover the unpaid debt.
- Freehold :
- A freehold title is an interest in land that gives the holder full and exclusive ownership of the land and building for an indefinite period. A leasehold title is an interest in land that gives the holder the right to use and occupy the land and building for a defined period.
- Gross Debt Service Ratio (GDS):
- The percentage of the gross income that will be used for payments of principal, interest, taxes and heating costs (P.I.T.H.) and 50% of any condominium maintenance fees or 100% of the annual site lease for leasehold tenure.
- Gross monthly income:
- Monthly income before taxes and deductions.
- High-ratio mortgage:
- A mortgage loan higher than 80% of the lending value of the property. This type of mortgage must be insured — by CMHC or a private company, for the benefit of the approved lender, against payment default.
- Home inspector:
- A person who visually inspects a home to tell you if something is not working properly, or is unsafe. He or she will also tell you if repairs are needed, and maybe even where there were problems in the past.
- Household budget:
- A plan that allocates income for household expenses.
- Insurance:
- Insurance provides coverage to ensure a loan is paid. See also Mortgage Loan Insurance and Mortgage Life Insurance for more details.
- Insurance premium:
- Payment for insurance.
- Interest:
- The cost of borrowing money. Interest is usually paid to the lender in regular payments along with repayment of the principal (loan amount).
- Interest rate:
- The price paid for the use of money borrowed from a lender.
- Land registration:
- A system to record interests in land, including the ownership and disposition of land.
- Land surveyor:
- A professional who can survey a property in order to provide a certificate of location.
- Lawyer:
- A legal advisor who is licensed to practice law and who assists people by representing them on legal matters.
- Lien:
- A claim against a property for money owing. A lien may be filed by a supplier or a subcontractor who has provided labour or materials but has not been paid.
- Life insurance:
- See Mortgage life insurance.
- Link home:
- A link, or carriage home, is joined by a garage or carport.
- Lump sum prepayment:
- An extra payment, made in lump sum, to reduce the principal balance of your mortgage, with or without penalty.
- Manufactured home:
- A factory-built, single-family home. It is transported to a chosen location, and placed onto a foundation.
- Maturity date:
- The last day of the term of the mortgage. On this day, the mortgage loan must either be paid in full or the agreement renewed.
- Mobile home:
- These are built in factories, and then taken to the place where they will be occupied. While these homes are usually placed in one location and left there permanently, they do retain the ability to be moved.
- Modular home:
- A factory-built, single-family home. The home is typically shipped to a location in two, or more, sections (or modules).
- Mortgage:
- A mortgage is a security interest given in the property you are purchasing which secures repayment of the loan related to the property. That security interest is discharged on payment of the principal and interest owning on the loan in accordance with the mortgage document. In Quebec, “mortgages” are called “hypothèques”.
- 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.
- Mortgage broker:
- The job of the mortgage broker is to find you a lender with the terms and rates that will best suit you.
- Mortgage life insurance:
- Mortgage life insurance gives coverage for your family, if you die before your mortgage is paid off.
- Mortgage lender:
- A morgage lender is an institution (bank, trust company, credit union, etc.) that lends money for a mortgage.
- Mortgage loan insurance:
- Mortgage loan insurance is required for residential mortgage loans with a loan-to-value ratio of more than 80%, and is available from CMHC or a private company. Because mortgage loan insurance protects the lender against losses in the event that a borrower fails to pay his or her mortgage, it enables more Canadians to purchase their home earlier, at competitive interst rates and benefit from the growth in home equity sooner.
- Mortgage payment:
- A regular payment to the lender that includes both the interest and the principal.
- Mortgage term:
- Length of time that the mortgage contract conditions, including interest rate, is fixed.
- MLS — Multiple Listing Service:
- A multiple listing service that contains descriptions of most of the homes that are for sale. This computer-based service is used to keep up with properties that are listed for sale.
- Net worth:
- Your financial worth, calculated by subtracting your total liabilities from your total assets.
- New Home Warranty Program:
- Coverage in the event that an item under the warranty needs to be repaired within the specific warranty period. The repair will be made by the organization that provided the warranty.
- Notary:
- In Quebec a notary handles the legal matters related to homebuying. In most other provinces, a notary only administers oaths, certifies documents and attests to authenticity of signatures and could not, in his/her capacity as notary, advise on legal matters.
- Offer to purchase:
- A written contract setting out the terms under which the buyer agrees to buy the home. If the Offer to Purchase is accepted by the seller, it forms a legally binding contract that binds the people who signed to certain terms and conditions.
- Open mortgage:
- A flexible mortgage that allows you to pay part before the end of its term.
- Open-house:
- A period of time during which a house or apartment for sale or rent is held open for public viewing.
- Operating Costs:
- The expenses that a homeowner has each month to operate a home. These include property taxes, property insurance, utilities, telephone and communications charges, maintenance and repairs.
- Premium:
- See CMHC Insurance Premiums.
- Principal:
- The amount that you borrow for a loan (not including interest).
- P.I.T.H.:
- Principal, interest, taxes and heating — costs used in both the Gross Debt Service ratio (GDS) and Total Debt Service ratio (TDS) calculations.
- Property insurance:
- Insurance that you buy for the building(s) on the land you own. This insurance should be high enough to pay for the building to be re-built if it is destroyed by fire or other hazards listed in the policy.
- Property taxes:
- Taxes charged by the municipality where the home is located, usually based on the value of the home. In some cases the lender will collect a monthly amount as part of the mortgage payment to cover your property taxes, which is then paid by the lender to the municipality on your behalf.
- Realtor or real estate agent:
- A person who acts as an intermediary between the seller and the buyer of a property.
- Reserve fund:
- A fund required to be set up by the condominium corporation for major repair and replacement of common elements and assets of a corporation. This amount is set aside by the homeowner on a regular basis so that funds are available for emergency or major repairs.
- Row house:
- Also called a townhouse, a row house is one unit of several similar single-family homes, side-by-side, joined by common walls.
- Security:
- Property that is pledged to guarantee the fulfillment of an obligation and that can be claimed by a creditor if a loan is not repaid.
- Single-family detached home:
- Free-standing home for one family, not attached to a house on either side.
- Single-family semi-detached home:
- Home for one family, attached to another building on one side.
- Stacked townhouse:
- Two two-story homes are stacked one on top of the other. The buildings are usually attached in groups of four or more. Each unit has direct access from the outside.
- Strata (or condominium):
- You own the unit you live in (e.g. a highrise or lowrise, or a townhouse) and share ownership rights for the common areas of the building along with the development’s other owners.
- Survey or Certificate of location:
- A document that shows property boundaries and measurements specifies the location of buildings, fences, and other improvements on the property and states easements or encroachments, at a specific point in time.
- Sustainable neighbourhood:
- Neighbourhood that meets residents needs while protecting the environment.
- Term:
- Mortgage term is the length of time that the mortgage contract conditions, including interest rate, are fixed.
- Title:
- A freehold title is an interest in land that gives the holder full and exclusive ownership of the land and building for an indefinite period. A leasehold title is an interest in land that gives the holder the right to use and occupy the land and building for a defined period.
- Title Insurance:
- Insurance against loss or damage arising from a matter affecting the title to real property (e.g.: by a defect in the title or by the existence of a lien, encumbrance or servitude).
- Total Debt Service Ratio (TDS):
- The percentage of gross income that will be used for payments of principal, interest, taxes and heat (P.I.T.H.) and other debt obligations, such as car payments or payments of other loans.
- Townhouse:
- Also called a row house, a townhouse is one unit of several similar single-family homes, side-by-side, joined by common walls.
- Variable mortgage interest rate:
- Fluctuates based on market conditions but the mortgage payment remains unchanged.
- Vendor:
- The seller of a property.
- Vendor take-back mortgage (Sometimes called take-back mortgage):
- The vendor, not a financial institution, finances the mortgage. The title of the property is transferred to the buyer who makes mortgage payments directly to the seller.
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