August 23, 2021 Buying

Learning the Lingo

By Kate Barker

Considering buying your first home and wondering what the heck everyone’s talking about? The real estate industry comes with its own language. Here are 15 common real estate terms – explained.

Amortization: This refers to the process of paying off your mortgage over time. Specifically, it refers to paying in instalments that include interest and principal payments over the course of the loan. You’ll hear your mortgage broker talking about an “Amortization Schedule”, which lays out how much money you’ll have to pay – and for how long – before you officially pay off all your debt and interest.

Appraisal: This is the official process of determining a property’s worth. An appraisal lets your mortgage lender know how much money they need to hand over. In Canada, there are only two associations that can provide an appraisal: the Appraisal Institute of Canada and the Canadian National Association of Real Estate Appraisals.

Assumption Agreement: This is often part of the paperwork you sign during the final stages of purchasing a property. It means that you now have responsibility for the existing mortgage on the home, and the seller won’t have any obligations for the mortgage anymore.

Closing Costs: These sneaky little costs are the fees you pay on the closing day of the sale, which is the very last day before you take possession of your new home. These often mark the last step to officially becoming a homeowner! These are usually legal fees that include disbursements, which are fees your lawyer has already covered on your behalf.

Conditional Offer: Most homeowners will purchase a property with a conditional offer. These can include things like financing conditions, which means you have time to finalize a mortgage for that property, or a home inspection, so you know exactly what’s going on with the house. This offer comes with a specific deadline, depending on the conditions of sale.

Counteroffer: This happens when the homeowners reject your initial offer but are still interested in the discussion. Think of this as a bargaining process: you’ve laid down your initial offer and now the homeowner is coming back with changes to that offer. Your initial offer is no longer valid, and you usually have a set amount of time to consider the counteroffer.

Deed: This is an official, legal document that transfers the property from one owner to the next. It describes the property, specifies the property lines, and needs to be signed by both the seller and the buyer.

Equity: This is the difference between the market value of your home and the amount you still owe to pay it off. If you make a profit on your home, you gain instant equity. You can use equity as an asset to help finance loans for things like repairs or to pay off higher interest debts.

Freehold: This is a type of title that means you own a piece of property indefinitely. The vast majority of homes come with this type of purchase. In places like Banff, however, you do not actually own the land. Instead, you have a leasehold, which gives you access to the land for a specified amount of time.

Interest Rate: This is the calculation of how much interest you’ll pay on your mortgage. There are fixed-rates, which mean you’ll pay the same percentage over the course of your agreement, or variable rates, which is a formula that accounts for market fluctuations. We wrote an entire article about this.

Lien: This is a technical way of holding your property ransom for money owed. Banks can include a lien in the mortgage terms, which means they can seize and resell your property if you don’t repay your mortgage. Trades can also put a lien on the home if they’re not paid for their work. This prevents you from selling until the debt is paid.

Maturity Date: This is the last day of your mortgage! Or at least, it’s the day you’ve agreed would be the last day of your mortgage. By this date, you are either mortgage free, or you’ve renegotiated your mortgage with your lender.

Offer to Purchase: This is the contract you present to the homeowner in order to purchase the property. It often has terms and conditions, which you both have to meet. If the seller accepts, this becomes a legally binding document.

Principal: This is the amount you borrow for your mortgage. It doesn’t include interest. Every time you renegotiate your mortgage, interest is based on the principal, so you’ll want to pay this down as quickly as possible.

P.I.T.H.: This stands for Principle, Interest, Taxes and Heating. It’s the calculation of your total expenses, should you purchase the home, and it is used to calculate the extent of debt ratios.

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