The A to Z of Real Estate Terminology
The one thing
about participating in the real estate market that confounds most consumers is the
terminology and jargon that must be learned. But, as with any business, in order to
be successful as a buyer or seller, it is necessary to become familiar with certain
concepts and words.
The real estate
business is somewhat unique in that it is not confined to one particular set of dealings.
Instead, it encompasses a number of professions: financial, legal,
governmental, building trades and of course, real estate itself.
So, from A for
amortization to Z for zoning regulations, here is a quick run-through of some the
important real estate terminology you'll encounter.
Amortization: The number of years it will take to pay off the entire amount of a
mortgage. In Ontario, most mortgages are usually amortized over 25 years.
Appraisal:
An estimate of a property's market value. This is used by lenders to
determine the amount of your mortgage.
Assessment:
The value of a property set by the local municipality. The assessment is used
to calculate your property tax.
Assumable
Mortgage: A mortgage held on a property by a seller that can be taken over by
the buyer. The buyer then assumes responsibility for making payments. An
assumable mortgage can make a property more attractive to potential buyers.
Blended
Mortgage Payments: Equal or regular mortgage payments consisting of both a
principal and an interest component.
Broker:
A real estate professional licensed in Ontario to facilitate the sale, lease or
exchange of a property.
Bridge
Financing: Money borrowed against a homeowner's equity in a property (usually
for a short term) to help finance the purchase of another property or to make improvements
to a property being sold.
Buy-down:
A situation where 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, the
difference can be paid to the purchaser in one lump sum or monthly installments. A
buy-down can make a property more attractive to potential buyers.
Closed
Mortgage: A mortgage that cannot be prepaid, renegotiated or refinanced during
its term without significant penalties.
Conventional
Mortgage: A first mortgage issued for up to 75 per cent of the property's
appraised value or purchase price, whichever is lower.
Debt Service
Ratio: The percentage of a borrower's gross income that can be used for housing
costs (including mortgage payments and taxes). This is used to determine the amount
of monthly mortgage payment the borrower can afford.
Easement:
A legal right to use or cross (right of way) another person's land for limited
purpose. A utility's right to run wires or lay pipe across a property is a common
example.
Encroachment:
An intrusion onto an adjoining property. A neighbour's fence, shed or
overhanging roof line that partially or fully intrudes onto your property are examples.
First
Mortgage: The first security registered on a property. Additional
mortgages secured against the property are termed 'secondary'.
High-Ratio
Mortgage: A mortgage for more than 75 per cent of a property's appraised value
or purchase price.
Listing
Agreement: The contract between the listing broker and an owner, authorizing the
Realtor to facilitate the sale or lease of a property.
Mortgage:
A contract between a borrower and a lender where the borrower pledges a property as
security to guarantee repayment of the mortgage debt.
Mortgage Term:
The length of time a lender will loan mortgage funds to a borrower. Most
terms run from six months to five years, after which the borrower will either pay off the
balance or renegotiate the mortgage for another term. Payments are calculated using
the interest rate offered for the term, the amount of the mortgage, and the amortization
period.
Multiple
Listing Service (MLS): A comprehensive system for relaying information to
Realtors about properties for sale.
Open Mortgage:
A mortgage that can be prepaid or renegotiated at any time and in any amount
without penalty.
Partially Open
Mortgage: A mortgage that allows the borrower to pre-pay a specific portion of
the mortgage principal at certain times with or without penalty.
Realtor:
A trademarked name describing real estate professionals who are members of a local
real estate board and the Canadian Real Estate Association.
Transfer
Taxes: Payment to the provincial government for transferring property from the
seller to the buyer.
Vendor
Take-Back Mortgage: A situation where sellers use their equity in a property to
provide some or all of the mortgage financing in order to sell the property.
Zoning
Regulations: Strict guidelines set and enforced by municipal governments
regulating how a property may or may not be used.
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