19 real estate terms you should know

When you’re buying or selling a property, all the real estate and financial lingo you need to know can be a bit daunting. What’s an amortization schedule, exactly? What is this HELOC you keep hearing about? What about a status certificate? The difference between a fixed- a variable-rate mortgage?

Head spinning yet? Have no fear, you’ll be throwing these terms around like a pro in no time. Here’s a quick rundown of some common (and commonly confusing) terms and concepts that will help you jump into the real estate process with some solid knowledge – and a vocab that’ll impress even the most seasoned real estate expert.

1. Amortization period vs. mortgage term

   The amortization period is the number of years it will take to pay the entire amount of a mortgage (at the current interest rate) at a regular monthly, bi-weekly, or weekly payment rate. 25 years is a pretty common number, but there are other options. The amortization isn’t the same as a mortgage term, however – that’s the length of time you’re locked into paying a certain interest rate.

   So you can have a 5-year term with a 25-year amortization, or a 2-year term with a 20-year amortization. And the amortization period can change over time: if you increase your payments, you can cut down the length of time it takes to pay off the loan. At the end of your mortgage term (usually 1-5 years), you can renegotiate your loan for a new term.

2. Assessment

   This is the value of a property as set by the city: it determines how much property tax you need to pay each year. However, what the city says your property is worth can be very different from its market value: properties are only re-assessed by the city every few years, but market value can change from week to week (as illustrated by the current market!)

3. Board of directors

   A condominium is owned jointly by all its unit owners. However, since it’s not feasible for everyone to be involved in decision-making, that’s where the condo board comes in. This small council of elected, volunteer owners act on behalf of all the owners.

   They look after running the condominium, making sure maintenance fees are collected, bills are paid, and any violations of rules and by-laws are addressed. This group manages the condo’s reserve fund and can determine or change building rules, as long as they respect the Ontario Condominium Act. They often have subcommittees for things like gardening, decorating common areas, organizing events like summer barbecues, and more. Anyone can run for the Board.

4. Closing costs

   This is what you’ll pay above and beyond the list price of a property, and includes things like legal fees and land transfer taxes, which are payable on the closing date. Here’s a rundown of what you can expect to pay for closing costs.

5. Common elements

   Your unit is your property, but everything that’s shared is considered a common element. Jointly owned by all owners, they include things like the gym, lobby, lounges, pool, elevators, parking garage, hallways, the roof, etc.

6. Conditional vs. firm offer

   A condition offer is one that’s subject to conditions such as loan approval or an inspection. If you make an offer that’s conditional on getting financing or a thumbs-up from a home inspector, you can walk away if those conditions aren’t met.

   A firm offer, on the other hand, is one that has no conditions. (Sellers tend to prefer this option.)

   One thing to keep in mind is that in a competitive market or in a scenario where a property is getting multiple offers, going in with a firm offer is the way to go: sellers are most likely to say yes to the offer that’s the least amount of work for them and nets them the greatest amount of money. Read up on the ins and outs of making an offer.

7. Condominium

   The word “condominium” is actually a legal term that defines the type of ownership, not the type of building. According to Webster’s, it’s “ownership of real property characterized by separate ownership of portions of the property (as units in an apartment building) and undivided or joint ownership of the remainder (as the common areas of an apartment building).”

   Any type of home can be a condo, including high-rise and low-rise buildings, townhomes, and even detached homes.

   Read more: So what is a condo, anyway?

8. Condominium corporation

   A condominium corporation is the legal entity that represents and governs the condo building. Each condo owner is a shareholder, and is responsible for helping make decisions and share in the costs of keeping it clean and in good repair via maintenance fees.

9. Debt service ratio

   How much a lender will lend you isn’t based on some magic formula only they know. It’s calculated on how much you earn and how much you owe. Basically, it’s the percentage of your income that can go to housing (including mortgage payments, taxes and condo fees) without putting you at risk of overextending yourself and defaulting on your mortgage.

   Set by the CMHC, it’s a ratio that’s designed to limit how much debt Canadian buyers take on, ensuring we don't bite off more than we can chew, and lowering risk to lenders.

   Read: How much can I afford?

10. Deposit

    Once the Agreement of Purchase and Sale has been accepted by the seller, the buyer pays a deposit that shows they are serious about the purchase. Your agent will advise you on how much to offer as a deposit.

    You pay it by certified cheque or money order, and it’s held by a third party until the closing date, at which point it's applied to your down payment. It’s a system that weeds out less-than-serious buyers: if you change your mind, you forfeit your deposit.

11. Equity

    This is the percentage of your home that you own outright, and the best part about it is that it keeps going up as you pay down your mortgage and the property appreciates over time. So, for example, if your home is worth $700K and you owe $500K on the mortgage, you have $200K in equity.

    (Your lender will determine the exact amount your home is worth, but a quick search on condos.ca or property.ca for what comparable properties in your neighborhood have sold for should give you a ballpark idea.)

    A home equity line of credit (otherwise known as a HELOC), allows you to borrow against that equity if you need some cash to renovate, finance a big purchase or invest in a second property.

12. Final closing

    This is when you get the title to your home (with pre-construction condos, it’s after building registration) and can move in.

13. Interim occupancy period

    Buying a pre-construction condo has a few unique challenges, and this is one that often surprises buyers. Basically, this is the difference between the occupancy date the builder gives you and when the condo finally closes and ownership transfers to you. Those can be two different dates.

    Here’s the kicker: if the occupancy date comes before registration, you pay a fee that’s based on maintenance fees, taxes and interest. But that payment doesn’t go towards your mortgage: it goes to the builder. And you have to pay it whether you’ve moved in or not.

    Here’s why: unit ownership can’t be transferred from the builder to the buyer until the building is registered with the city, and that can’t happen until all the units in the building are done. Lower floor units are likely to be ready to live in before those on higher floors.

    The interim occupancy period can last anywhere from 3-18 months. Definitely something to factor in before considering a pre-con.

14. Land transfer taxes

    You pay these wherever you transfer property ownership, anywhere in Ontario. And (lucky you), if you're buying in Toronto, you pay an additional municipal land transfer tax, which ranges from 0.5% to 2.5% depending on the value of the home. Rebates are available for first-time buyers, though. This land transfer tax calculator can help you figure out your costs.

15. Maintenance/condo fees

    Condo owners pay a monthly fee for utilities, regular upkeep, management, administration and insurance for the building’s common areas. Fees vary widely and are based on square footage, overall number of units, amenities, the building’s financial health, and are determined by the condo board. Read more about maintenance fees here.

16. Mortgage

    This is the loan you take to buy property in which the property itself is used as collateral. But there’s more than one kind of mortgage, so here’s a quick rundown that will help you as you talk to lenders.

    • Pre-approved mortgage. This isn’t a specific type of mortgage: it’s a strategy to help you determine your budget and enable you to buy without having to include financing as a condition. Basically, it qualifies you for a mortgage amount at a set interest rate before you start looking for a home, which makes it a lot easier to look in your price range. Read: 6 reasons to get pre-approved

    • Fixed-rate vs. variable rate mortgage. In a variable-rate mortgage, your payments are fixed, but the interest rate isn’t: it changes based on fluctuating market interest rates. So if market rates go down, a larger portion of the payment goes to pay off your principal. If market rates go up, on the other hand, a bigger portion of your monthly payment ends up going to interest.

      In a fixed-rate mortgage, both elements are fixed for a specific length of time (term). You’ll likely pay a higher interest rate than you would with a variable rate, but you’re paying for reduced risk. If rates go up, your payments stay the same and you save money. If they go down, however, you’ll still end up paying the same amount until the end of your term, despite rates being lower.

    • Conventional mortgage. This is a mortgage that's issued for no more than 80% of the property's appraised value or purchase price, whichever is lower.

    • High-ratio mortgage. Borrowing more than 80% of a property's appraised value or purchase price means a mortgage is high-ratio, and requires that you pay for mortgage loan insurance from the Canada Mortgage and Housing Corporation (CMHC) and GE Capital Mortgage Insurance Company of Canada.

    You get your mortgage from a lender like a bank or a credit union. You can apply directly to the lender or use a mortgage broker, a professional who offers a selection of mortgage products from different lenders.

17. Offer/counteroffer

    An offer is a legally binding agreement between you and the seller. It includes the price you're offering to pay for a property, what you expect will be included with the property, and the financial conditions of sale (your financing arrangements, the closing date, etc.). A seller can accept or reject your offer, and either party can make a counteroffer, in writing, during negotiations.

18. Status certificate and reserve fund

    The status certificate is a document that details the operational, legal and financial status of the condo corporation, and will show any legal filings or judgments. It’s a condo’s “report card,” and will outline the health of the reserve fund, an account that’s in place to cover big expenses including repairs to common elements like the roof, windows, HVAC, etc.

    Knowing the financial and legal health of the corporation is important before you buy: if the building is being sued or there’s not enough in the reserve fund to cover a major expense, that could mean your maintenance fees are likely to go up and/or the board may issue a special assessment, which means all owners must pay a portion of the repair.

    That’s where a good real estate lawyer comes in: by reviewing the status certificate, they will be able to flag any problems.

19. Principal vs. interest

    This is the portion still owing on the mortgage. Interest is calculated on the principal amount and is what you pay the lender to borrow that money. So if you’ve bought a home for $750K, put $150K down and borrowed the rest, that $600K is your principal. As more principal gets paid off over time, the less interest you pay.