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Glossary of Terms
A B C D E F G H I J K L M N O P Q R S T U V W Z
 Adjustable Rate Mortgage (ARM):
Mortgage in which rates/payment vary according to the current rate of interest. Many offer lower-than-market initial rates that rise only gradually for the first few years.
Adjustments:
Money that both buyers and sellers credit to each other at closing, including taxes and down payment.
Agent:
Licensed representative of the seller who assists both buyers and sellers with information, advice, and assessment of current market conditions.
Appraisal:
Unbiased, professional opinion of a property's value based on its style and appearance, construction quality, usefulness, and the value of comparable properties.
Appraised Value:
The estimated of the value of the property offered as security for a mortgage loan. This appraisal is done for mortgage lending purposes and may be less than the purchase price of the property.
Amortization Period :
The actual number of years it will take to repay a mortgage loan in full. This may go beyond the term of the loan. For example, mortgages often have five-year terms but 25-year amortization periods.
Asking price:
Price at which the owner wishes to sell a property.
Assessor:
Municipal or county official who determines the value of property for taxation.
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Balloon mortgage:
Short term loan, usually at a fixed interest rate, paid back in equal monthly payments, with a large, final "balloon" payment for the balance.
Broker:
Person licensed to represent homebuyers or sellers for a fee.
Buyer's agent:
Agent that represents the buyer in the real estate transaction.
Back to top Canada Mortgage and Housing Corporation (CMHC) (Canada):
The Corporation of the Federal Government that administers the National Housing Act (NHA) and provides mortgage insurance to lenders.
Closed and Open Mortgages:
A closed mortgage agreement does not provide for payout before maturity. A lender may permit payout under certain circumstances but will levy a penalty charge for doing so. An open mortgage permits for prepayment/repayment at any time without penalty.
Closing:
Final settlement, including the buyer's signing of the mortgage and mortgage note, and exchange of title.
Closing costs:
Fees and other charge paid by both buyers and sellers at closing.
Closing Date:
The date on which the sale of the property becomes final and the new owner takes possession.
Condominium:
A form of ownership in which the owner has title to a dwelling unit and owns a share of the common elements (such as elevators, hallways and the land).
Commission:
Percentage of the home's sale price paid at closing to the listing agent and to cooperating agents.
Comparables:
Houses and properties that is similar in style, appearance, construction quality and usefulness to a particular property in a certain location.
Competitive market analysis (CMA):
Realistic estimate of a home's current market value based on the most salient points of the local real estate market.
Conventional Mortgage ( Canada ):
A mortgage loan that does not exceed 75% of the lesser of the appraised value or the purchase price of the property. A mortgage that exceeds that limit must be insured.
Conventional mortgage:
Mortgage not FHA insured or guaranteed by the VA, so-called because it is the most popular home financing method.
Counter-offer:
Offer made by the buyer or seller in response to the other's bid.
Curb appeal:
Common term for everything prospective buyers can see from the street that might make them want to take a closer look at a house for sale.
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Debt Service Ratios (GDSR & TDSR) ( Canada ):
The Gross Debt Service Ratio (GDSR) is the percentage of gross annual income required to cover payments associated with housing (mortgage principal and interest, taxes, secondary financing, heating, and 50% of condominium fees, if any). The GDSR should not exceed 32% of gross annual income. The Total Debt Service Ratio (TDSR) is the percentage of gross annual income required to cover payments associated with housing and all other debts and obligations, such as payments on a car loan. The TDSR should not exceed 40% of gross income. For self-employed/commission sales applicants, net income is used for GDSR and TDSR ratio calculations.
Deed:
Instrument that transfers title from the seller to the buyer.
Down Payment:
The amount of money (usually in the form of cash) put forward by the purchaser. It represents the difference between the purchase price and the amount of the mortgage loan.
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Earnest money:
Money paid by a buyer at the time of making an offer or entering into a contract to purchase which is intended to show the buyer's good faith intention to complete the purchase. Generally, earnest money is applied against the purchase price, but may be forfeited if the buyer fails to complete the purchase.
Equity:
Equity is the difference between the price for which a property could be sold and the total debts registered against it.
Escrow account:
Third-party account for holding money, such as a buyer's earnest money and the owner's taxes and insurance payment.
Exclusive agency:
Sales contract in which sellers owe no commission to an agent if they find a buyer for their house on their own.
Exclusive right to sell:
Sales contract in which sellers owe commission to the listing agent even if they find a buyer for their house on their own.
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Fair market value:
Highest price an informed buyer will pay, assuming there is not unusual pressure to complete the purchase. FHA-insured mortgage:
Mortgage with low down payment requirements, insured by the Federal Housing Administration and made available through banks and other lenders.
Fixed Rate and Variable Rate Mortgages:
A fixed rate mortgage is where the rate of interest is fixed for a specific term. A variable rate mortgage is where the rate of interest changes as money market conditions change, usually not more than once a month. The monthly payment stays the same for a specified period; however, the amount applied towards the principal changes according to the changes (if any) in the rate of interest.
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GEMICO ( Canada ):
GE Capital Mortgage Insurance Company of Canada , a private mortgage insurer.
High Ratio Mortgage:
A mortgage loan that exceeds 75% of the lesser of the appraised value or purchase price of the property. This mortgage must be insured and borrowers must pay an application fee and the insurance premium (which may be added to the mortgage) to the insurer.
Home warranty:
Policy purchased by a buyer or seller as assurance against unexpected home repair costs.
Homeowner's policy:
Insurance policy covering at least the appraised value of a house and property.
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Inspection:
Formal survey of a home's structure and systems, often performed by a licensed professional.
Inspection clause:
Stipulation in an offer-to-purchase that makes the contract contingent upon the findings of a professional home inspector.
Interest:
Charge paid to a lender for borrowed money.
Interest Adjustment Date (I.A.D.):
A date, usually one month before monthly mortgage payments begin, when interest on monies advanced before that date is calculated and must be paid by the borrower.
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Leasehold Mortgage:
A mortgage loan on a home where the building is on leased (rented) land. The lender takes an interest in the lease.
Lease-purchase agreement:
Agreement between a tenant and landlord that a portion of monthly rent may be credited toward eventual purchase of the rental property.
Lender's agent:
Person who represents the lender holding the mortgage at closing.
Listing:
Contract in which the seller agrees to pay a commission to the agent who finds a purchaser who can meet the specified terms.
Loan-to-Value Ratio:
The ratio of the loan to the appraised value or purchase price of the property, whichever is less, expressed as a percentage.
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Maturity Date:
The last day of the term of the mortgage agreement. The mortgage agreement must then be renewed or the mortgage balance paid in full.
Mortgagee :
The lender
Mortgagor:
The borrower
Mortgage:
Claim that a lender receives on a property as its security for the loan it makes to the home buyer.
Mortgage broker:
Independent, third-party broker who arranges transactions between borrowers and lenders by streamlining the application and approval process and finding favorable terms for the buyer.
Mortgage note:
Signed promise to repay a mortgage loan in regular monthly payments.
Multiple Listing Service (MLS):
System in which participating brokers agree to share commission on the sale of houses listed by any one of them.
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National Housing Act (NHA) Loan ( Canada ):
A mortgage loan insured by CMHC.
Offer (offer-to-purchase):
Legally binding, written contract that declares how much a buyer will pay for the house provided certain conditions are met.
Open house:
Opportunity for prospective buyers to view a house for sale in a low-pressure atmosphere.
Origination fee:
Similar to a point; a supplemental fee paid to lenders.
Over-improvement:
Addition or improvement in which the cost is greater than the increased value of the house.
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Payment cap:
Protective device included in some adjustable rate mortgages that sets maximum amount monthly payments may rise in any given year.
P.I.T.:
Principal, interest, and taxes.
PITI:
Principal, Interest, Taxes, and Insurance, the four main parts of a monthly mortgage payment.
PMI:
Private mortgage insurance, which protects the lender in case of default by the borrower. PMI is often used to allow buyers to obtain financing with less than a 20% down payment.
Points:
One point equals one percent of the total mortgage loan amount. Buyers often pay lenders a supplemental fee, calculated in points, to get a better mortgage insurance rate.
Prepayment Charge:
A fee charged by the lender when the borrower pays off all or a portion of a mortgage more quickly than provided for in the mortgage agreement.
Pre-payment:
Paying off an entire mortgage before the scheduled date.
Pre-qualify:
Informal determination by a lender or broker of how large a mortgage a buyer can afford.
Principal:
Money borrowed from a lender, not including any fees or interest.
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Qualify:
Ability to meet a lender's mortgage approval requirements.
Rate cap:
Protective device in some ARMs that sets a maximum amount those interest rates may rise or decrease annually and over the life of the loan.
Referral:
One agent's recommendation of a potential buyer of seller to another cooperating agent.
Refinance:
To arrange a new mortgage for an increased amount. The old mortgage(s) is paid off (discharged) from the proceeds of the new loan. This type of loan is also referred to as "equity take out."
OR:
Applying for a new mortgage in order to gain better terms -- usually a lower interest rate.
Renew :
To extend a mortgage agreement with the same lender for another term. The length of the term and the conditions (such as the rate of interest) may be changed.
Return on investment:
Value or profit gained as a result of dollars spent, as in an improvement or addition.
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Settlement disclosure statement:
A list giving a complete breakdown of costs involved in a real estate transaction, prepared by the lender's agent at closing.
Term:
The duration of a mortgage agreement. As the amortization period is longer than the term, mortgage payments made may not fully cover the outstanding principal by the end of the term.
Title:
Right of ownership and possession of a property.
Title insurance:
Policy that protects a buyer against errors or omissions or defects in the title of a property.
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VA mortgage:
Mortgage guaranteed by the Department of Veterans Affairs and made available through banks and other lending institutions. Reserved for active military personnel, veterans, or spouses of veterans who died of service-related injuries.
Walk through inspection:
Final inspection of a property's condition by the buyer, usually to ensure that all conditions noted in the offer-to-purchase have been met.
Zoning:
Local restrictions for neighborhood building and land use
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