Real Estate Terminologies You Should Know

Buying a home can be an exciting yet overwhelming experience. To make the process smooth and less confusing, it is essential to learn some basic real estate terminologies: 

Abstract of Title

An abstract of title is a history of the title related to the parcel of real estate in written form as recording in LRO (Land Registry Office). 

Agreement of Purchase and Sale

The agreement of purchase and sale is a written real estate contract used for buying or selling a property. This contract demonstrates the terms and conditions of the agreement. 

Amortization 

Amortization is a debt’s gradual retirement through partial principal payment made at regular intervals. 

Amortization Period

This is the time duration within which a debt must be completely retired via scheduled payments.

Appraised Value

This refers to the value of a property, which is estimated by a qualified individual after examining it. 

Appurtenance 

An area situated outside a property, but is joined thereto and belongs to the property. 

ARM

ARM is an abbreviation for Adjustable Rate Mortgage. As the name suggests, the interest rate for this type of mortgage can be periodically adjusted, as per the movements in the pre-selected index. 

Assumption of Mortgage

This is when the buyer takes responsibility for mortgage debt through a legal agreement. 

Balanced Market

This is a market in which the sales to active listings remain stable in the range between 14 and 20 percent. 

Balloon Payment 

This refers to the final payment of a mortgage, which is paid at the end of the term, paying off in full the outstanding loan. 

Bank of Canada Overnight Target Rate 

This term refers to the interest rate’s target level as set by BoC (Bank of Canada). It is the rate at which financial institutions lend and borrow one day or overnight funds among each other. 

Blanket Mortgage 

This is a single and registered document that encompasses many properties. 

Breach of Contract 

A breach of contract occurs when one of the parties in a contractual agreement fails to fulfill their obligations, as stated in the contract. 

Buyer’s Market 

A buyer’s market refers to when the supply of homes exceeds the demand. This happens when the home sales-to-active listings ratio falls below 14%. 

CAP 

It is the maximum interest rate that can be increased on a mortgage. 

Caveat Emptor

It means “let the buyer beware” in Latin, and indicates that the buyer alone must thoroughly examine the property or goods before making the purchase. 

CMHC 

CMHC is the abbreviation for ‘The Canada Mortgage and Housing Corporation’. The CMHC is responsible for administering the National Housing Act. Some of the services of CMHC include insuring of mortgage loans with high ratios for lenders. 

Component of Financing 

Using this device, lending is easily split into different parts, which are treated individually. 

Conventional Mortgage 

The mortgage loan that doesn’t exceed 80% of a property’s lending value. 

Covenant 

This is an agreement included in an instrument, which creates an obligation. It can be positive, specifying a certain act. It can be negative, prohibiting a certain act. 

Date of Completion 

The date of completion is specified in a purchase and sale agreement. It is the date when the buyer must deliver the due balance of money while the vendor has to deliver a duly executed deed. 

Depreciated Reproduction Cost

A method of appraisal through which total amount of structure replacement is subtracted by depreciation, provides the cost of depreciation reproduction. 

Discounted Cash Flow Analysis 

This analysis method is used to deduce the investment’s actual value in terms of its present value. Thereafter, a discount factor is added to the equation to make a real comparison between the investment with quick returns and the other is placed over a number of years. 

Encumbrance 

This refers to a lien or outstanding claim that is recorded against a property.  

Escrow Account 

This is an account that is held on behalf of an agent’s principal for the payment of money that is due to the 3rd party in the event of specific incidents. For example, if the solicitor on behalf of the vendor holds his or her funds until the title deed to the property is delivered and the property registered and its keys are delivered to the buyer. 

Escheat 

This indicates property reversion to the state in case of the passing of its owner, with no will available and no legal heir available to pass on the property as per lawful descent.

Exculpatory Clause 

It is a clause excusing a party from any personal liability in case of default. 

Final Order of Closure 

The judgement that is taken against the mortgagor and extinguishing the redemption equity. 

Floating Rate of Interest 

The floating rate of interest fluctuates as per the prime lending rates. As of 25th January 2016, the Bank Prime Rate is 3.95%. 

Floor-to-Ceiling Loan 

An advance or permanent loan made in two stages – a) upon the construction completion of as per the terms and conditions agreed upon, b) balance advanced on requirements of cash flow or on occupancy.

Graduated Amortization Mortgage 

This is a special technique of mortgage repayment in which the initial repayments are low but are gradually made at a higher rate. 

Guaranteed Income Mortgage 

A guarantee that is included in the purchase money mortgage by the seller mortgagee. It states that there shall be a minimum net operating income or cash flow to the purchaser mortgagee. However, it is only limited to a specified period.  

Housing Starts 

This refers to the number of under construction privately-owned housing units in a given period.  

Indenture 

It is a deed document, typically a duplicate, which expresses specific objects among parties.

Injunction 

This is the judicial order or process, which requires an individual, whoever it is directed for, to refrain or to do a certain thing.  

Legal Mortgage 

A legal mortgage refers to the legal estate transfer made for the purpose of securing debt repayment. 

Lien 

A legal claim made against a real estate, which is filed to ensure debt payment.  

Listing Agreement 

This is a contract that is made between a listing brokerage and property owner. It authorises a real estate professional to facilitate the property lease or sale. 

Lis Pendens 

This is a legal document which gives notice about a proceeding or action pending in courts that affect the designated property title.

Lock-In Clause 

It is a clause restricting a loan prepayment during certain duration of the overall mortgage term. 

Mortgage Insurer 

In Canada, mortgages higher than 80% of the real estate value (high ratio mortgages) need to be insured against default, either by private insurers or the CMHC. Furthermore, the loan borrower must pay the insurance. This provides protection to the lender and cushions him or her in case the borrower defaults.  

Notice D.O.R.

This is a notice, which is filed by a mortgagor in court under foreclosure proceedings that they desire a redeem opportunity. 

Obligatory Advance 

This is an advance made as per the conditions of pre-existing mortgage or a construction loan agreement. 

Property Transfer Tax 

Also known as PTT, this is a tax for land registration that should be paid the moment when the application for the taxable transaction is made. 

Promissory Note

This is a written document that acknowledges a debt and promises the payment. 

Sales-to-Active Listings Ratio 

This ratio is used in the housing market to measure the balance between demand and supply. The formula is denoted as the number of sales unit divided by the number of active listings. 

Title 

It is the legal evidence of property ownership. 

Title Search 

A title search is a procedure that entails a thorough examination of the documents of property ownership, thereby ensuring that there are no encumbrances or liens on that property.  

Variable Rate Mortgage 

This is a mortgage with fixed payments, but has a varying interest rate. The interest rate varies in relation to the changing market interest rates.  

Zoning Regulations 

Zoning regulations are a strict set of guidelines that are enforced by the municipal governments in Canada, responsible for regulating how a real estate should and shouldn’t be used. 

In case of any confusion or for further queries, don’t hesitate to contact me.