Real estate agents and brokers in Ontario – and just about everywhere else – often have to deal with complicated real estate terms throughout the process of helping you buy or sell your home. To help you understand some of the information out there for property buyers and sellers, check out the definitions below of some of the most common terms used by GTA REALTORS®.
Bungalow - A one-storey house, cottage, or cabin.
Condominium - A large property complex that is divided into individual units and sold. Ownership usually includes a non-exclusive interest in certain "common properties" controlled by the condominium management.
Close or Completion - The final procedure in a home sale, in which documents are signed and recorded. It is during the closing stage that ownership of the property is officially transferred.
Closing Statement - A document commonly used in real estate transactions, which details the fees, commissions, insurance, etc. that must be transacted for a successful transfer of ownership to take place. This document is prepared by a “closing agent” and is also known as a "settlement sheet".
Commercial Real Estate - Property that is solely used for business purposes.
Deed - A legal document that grants the bearer a right or privilege, provided that he or she meets a number of conditions. In order to receive the privilege - usually ownership – the bearer must be able to do so without causing others undue hardship. A person who poses a risk to society as a result of holding a deed may be restricted in his or her ability to use the property. Deeds are most known for being used to transfer the ownership of automobiles or land between two parties.
Investment Real Estate - Real estate that generates income or is otherwise intended for investment purposes, rather than as a primary residence. It is common for investors to own multiple pieces of real estate, one of which serves as a primary residence, while the others are used to generate rental income and profits through price appreciation. The tax implications for investment real estate are often different than those for residential real estate.
Land - Property or real estate that does not necessarily contain buildings, equipment, or anything else that does not occur naturally. Depending on the title, land ownership may also give the holder the rights to all natural resources on the land. These may include water, plant and animal life, fossils, soil, minerals, electromagnetic features, geographical location, and geophysical occurrences.
Land Value - The total value of the land, including any upgrades or improvements to the land.
Real-Estate Agent - A person with a state/provincial license to represent a buyer or a seller in a real-estate transaction, in exchange for commission. Ontario real estate agents (also known as real estate sales representatives) are required to work with a real-estate broker or REALTOR®, and to clearly disclose this affiliation.
Zoning - Government (usually municipal) laws that control the use of land within a jurisdiction.
Assumable Mortgage - A type of financing arrangement in which the outstanding mortgage and its terms can be transferred from the current owner to a buyer. By assuming the previous owner's remaining debt, the buyer can avoid having to obtain his or her own mortgage.
Canadian Mortgage and Housing Corporation (CMHC) - A division of the Government of Canada that acts as Canada's national housing agency. The CMHC's mandate is to help Canadians access a variety of affordable housing options. It also researches housing and real estate trends in Canada and around the world – providing research to consumers, businesses, and other government divisions. The major activity of the CMHC, and the one for which it is best known, is mortgage loan insurance, which insures approved lenders (such as Canada's chartered banks) against borrower default. Mortgage loan insurance provides approved borrowers access to low-cost mortgage rates. CMHC approved buyers may purchase property with as little as five per cent paid as a down payment.
Collateral - Properties or assets that are offered to secure a loan or other credit. Collateral becomes subject to seizure in the instance of a mortgage “default,” – a situation arising from failure to make mortgage payments as required.
Conventional Mortgage - A mortgage that does not exceed 80 per cent of the purchase price of the home. Mortgages that exceed this limit must be insured against default, and are referred to as high-ratio mortgages.
Debt-to-Income Ratio - A ratio that indicates what portion of a person's monthly income goes toward paying debts. It is calculated as an individual's total monthly debt, divided by gross monthly income and expressed as a percentage. Total monthly debt includes such expenses as mortgage payments (made up of principal, interest, taxes and insurance or PITI), credit-card payments, child support and other loan payments. Lenders use this ratio in conjunction with the front-end ratio to approve mortgages.
High Ratio Mortgage - If you don't have 20 per cent of the lesser of the purchase price or appraised value of the property, your mortgage is considered a “High Ratio Mortgage” and must be insured against payment default by a Mortgage Insurer, such as the CMHC or Genworth
Front-End Ratio - A ratio that indicates what portion of an individual's income is used to make mortgage payments. It is calculated as an individual's monthly housing expenses, divided by his or her monthly gross income, and then expressed as a percentage. Monthly housing expenses include the mortgage principal, interest, taxes and insurance payments - collectively known as PITI. Monthly gross income is simply annual income divided by 12 (months). Lenders use the front-end ratio in conjunction with the “back-end ratio” (percentage of income diverted towards paying down debts in general) to approve mortgages.
Interest Rate Ceiling - The absolute maximum rate of interest that a financial institution can charge for an adjustable rate mortgage or loan.
Mortgage - A debt instrument, secured by the collateral of specified real estate property, that the borrower is obliged to pay back with a predetermined set of payments. Mortgages are used by individuals and businesses wishing to make large value purchases of real estate without paying the entire value of the purchase up front. Mortgages are also known as liens against property, or claims on property.
Mortgage Banker - A company, individual or institution that originates, sells and services mortgage loans. In the Toronto area and the rest of Canada, mortgage-related services and financing are generally available to home buyers through well-known financial institutions such as a chartered bank or credit union.
Mortgage Broker - The matchmaker between a homebuyer and a lender, whose goal is to originate a mortgage loan. The broker draws from a pool of various lenders to find the right match.
Mortgagee - An entity that lends money to a borrower (see Mortgagor) for the purpose of purchasing a piece of real property. By accepting a mortgage on the real property, the lender creates security for the future repayment of the loan.
Mortgagor or Chargor - The entity (be it person or company) that borrows money to purchase a piece of real property. By granting the lender an interest in the property, which allows it to lend the funds after underwriting the risk, the mortgagor provides the lender with a guarantee for the full repayment of the loan.
An experienced Ontario REALTOR® can help you understand these terms and many of the other concepts that you will need to understand while trying to buy or sell a home. CLICK HERE to get in touch with the team of top GTA real estate professionals at Living Realty today.