Home Buying and Financial Terminology

Amortization
Period of time, most often 15, 20 or 25 years, needed to reduce a debt to zero when payments are made regularly.

Appraisal
A process for estimating the market value of a particular property. It can help the purchaser determine what price to offer. It can also be used by the lender for mortgage purposes. The appraised value seldom matches the actual purchase price exactly, as other factors influence price.

Approved Lender
A lending institution authorized by the Government of Canada through CMHC to make loans under the terms of the National Housing Act. Only approved lenders can negotiate mortgages which require mortgage loan insurance.

Assumable Mortgage
Purchaser takes ownership to real estate encumbered by an existing mortgage and assumes responsibility as the guarantor for the unpaid balance of the mortgage. All mortgages in Alberta are considered assumable.

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.

Building Permit
A certificate that must be obtained from the municipality by the property owner or contractor before a building can be erected or repaired. It must be posted in a conspicuous place until the job is completed and passed as satisfactory by a municipal building inspector.
Cash Difference
The difference between your down payment and your deposit.

Closed Mortgage
This mortgage cannot be paid out before its term has expired, however, in most instances the lender will allow payout with some penalty.

Closing Costs
Costs, in addition to the purchase price of the home, such as legal fees, transfer fees and disbursements, that are payable on the closing date. Closing costs typically range from 1.5 to 4 percent of a home’s selling price.

Closing Date
The date on which the sale of a property becomes final and the new owner takes possession.

C.M.H.C. (Canadian Mortgage and Housing Corporation)
A Crown Corporation which insures the lender in the event of default by the borrower. The borrower must pay this premium up front or it can be added to the mortgage. The premium ranges from 1.25% to 2.5% of the mortgage amount.

Conditional Offer/Conditions of Sale
An Offer to Purchase that is subject to specified conditions, for example, the arranging of a mortgage. There is usually a stipulated time limit within which the specified conditions must be met.

Conventional Mortgage
A mortgage loan that does not exceed 75% of the value of the property. Once past this level the lender is required to use C.M.H.C.

Deposit
The amount of money put into trust as a show of good faith that you will be purchasing the property.
Depreciation
A loss in value for any reason

Deterioration
The wearing out of, or decrease in efficiency of, some part of a property. Deterioration results in depreciation.

Development
The improvement, creation, replacement, or repair of a building or land.

Development Permit
Document issued by a municipal authority stipulating what can be done on a given piece of land or to a building situated on that land. This is issued before the Building Permit.

Disbursements
Extra costs charged to a title transfer process levied by the lawyer. Example: photocopying, courier expenses, postage, etc.

Discharge of Mortgage
A document signed by the lender and given to the borrower when a mortgage loan has been repaid in full.

Disclaimer
Statement usually contained in a Listing’s Highlight Sheet or a property prospectus advising the reader that some claim or information contained in the document may not be relied upon without further investigation.

Disclosure
A duty which requires a Realtor to tell his client all facts and information known to him which may influence his client’s decision to enter into a purchase contract, e.g. informing a Seller, in writing, that the Buyer of his property is the wife of the selling Realtor.

Distress Sale
A sale wherein a Seller sells a property for less than the fair market value, usually due to extenuating, personal circumstances, e.g. sale of a deceased parent’s residence.


Dower Act
Alberta Provincial legislation which prevents the sale of a matrimonial home or a home on the homestead quarter section without the consent of the spouse.

Dower Right
Rights given under The Dower Act to a spouse in a marriage; does not apply to common-law relationships.

Dual Agency
Occurs when a Realtor represents both the Seller and the Buyer in the same transaction; may also occur when another Realtor from the same company (office) sells your listing.

Duplex
A residential building which has in it two self-contained residential units.

Duress
The forcing of a person to act out of fear of mental or physical harm.

Easement
A right acquired for access to or over, or for use of, another person’s land for a specific purpose, such as a driveway or public utilities.

Effective Age
Figure used in the appraisal of a property wherein the condition of the building differs from the actual age of the building.

Electromagnetic Field(s) (EMF)
Is a perceived environmental hazard resulting from above ground high voltage power lines. It still remains unproven as to whether EMFs do indeed cause cancer. The incidence of EMFs from power lines are only of concern inside 35 metres. EMFs are also produced from inside home electrical appliances (toasters, microwaves). Suggestion: Always bring the close proximity of power lines to the attention of the Buyer, in writing, on a purchase contract.

Eminent Domain (The Power of)
The right of a municipality to expropriate property for the common good of the public.
Encroachment
Occurs when a fence, retaining wall, or other improvement intrudes onto adjoining private or public land

Encroachment Agreement
A document which permits an encroachment to continue, under specific terms.

Encumbrance
A registered claim for debt against a property, such as a mortgage.

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 outstanding principal of the mortgage is reduced through regular payments. Market values and improvements to the property also affect equity.

Gross Debt Service Ratio (GDS)
The percentage of the borrower’s gross monthly income that will be used for monthly payments of principal, interest, taxes, heating costs and half of any condominium maintenance fees.

High Ratio Mortgage
Any mortgage that exceeds 75% of the value of the property or the purchase price. Once past this level the lender is required to use C.M.H.C. This however can vary with private lenders.

Holdback
An amount of money withheld by the lender during the progress of construction of a house to ensure construction is satisfactory at every stage. A standard holdback amount is 10 percent of the total cost of the building project.

Interest Adjustment Date
This is the point in time during the purchasing process (usually possession date) that the lender does their final accounting on any interest that may be owing.
Loan to Value Ratio
The ratio of the loan principal (amount borrowed) to the property’s appraised value (purchase price). A $100,000 home with a mortgage of $80,000 has a loan to value ratio of 80%.

Mortgage Loan Insurance
If you have a high ratio mortgage (more than 75% of the purchase price), your lender will require mortgage loan insurance – available from CMHC or a private insurer. The insurance premium will cost between 0.5% and 3.75% of the amount of the mortgage (additional charges may apply).

Mortgage Life Insurance
This insurance guarantees that if you die, your mortgage will be paid in full. This insurance can be conveniently purchased through your lender and the premium added to your mortgage payment. However, you may want to compare rates for equivalent products from an insurance broker.

Mortgagee
The lender who provides the mortgage.

Mortgagor
The borrower who pledges the property as security for the loan.

Net Worth
Your total financial worth, calculated by subtracting your total liabilities from your total assets.

Offer to Purchase
A written contract setting out the terms under which the buyer agrees to buy. If accepted by the seller, it forms a legally binding contract subject to the terms and conditions stated in the document.

Open Mortgage
This type of mortgage can be paid out at any time without penalty. The interest rate is normally higher than the rate for closed mortgages.

P.I.T.
Principal, interest and taxes – payments due on a regular basis under the terms of the mortgage agreement. Generally, payments are made monthly and include 1/12th of the estimated annual municipal and school taxes. Since these taxes change from year to year, this section of the mortgage will change accordingly.

P.I.T.H.
Principal, interest, taxes and heating – Costs used to calculate the Gross Debt Service Ratio (GDS).

Prepayment Penalty
A fee paid for the mortgagee for paying the mortgage before it comes due.

Prepayment Privileges
The right given to a mortgagor to pay all or part of a debt prior to its maturity. Many options are available depending on the lender’s policies.

Refinance
To pay off a mortgage or other registered encumbrance and arrange for a new mortgage, sometimes with a different lender.

Second Mortgage
An additional mortgage on a property that already has a mortgage.

Tax Adjustment
Most municipalities require that property owners have on deposit a certain number of months of prepaid tax in their account at all times.

TDSR – Total Debt Service Ratio
This is a calculation used by the lending community to calculate how much a borrower can pay towards PIT payments and all other loans and credit cards. This is usually 35% to 40%.

Term
The length of time during which a mortgagor pays a specific interest rate on the mortgage loan. The entire mortgage principal is usually not paid off at the end of the term because the amortization period is normally longer than the term.

Title
A freehold title gives the holder full and exclusive ownership of land and buildings for an indefinite period of time. In condominium ownership, land and common elements of buildings are owned collectively by all unit owners, while the residential units belong exclusively to the individual owners. A leasehold title gives the holder a right to use and occupy land and buildings for a defined period of time.

Zoning Bylaws
Municipal or regional laws that specify or restrict land use.