First-Time Buyer Glossary

First-Time Buyer Glossary

As a first-time buyer, we know that making sense of all the acronyms, buzzwords, and terminology you come across can be a challenge. So we’ve compiled the following list of terms, along with an explanation of their meaning, to help you better understand the first-time buyer content on our blog.

Amortization
The number of years it will take to pay the entire amount of a mortgage (including interest) at a regular monthly or bi-weekly payment rate.

Appraisal
An estimate of a property's market value, performed by a licensed appraiser. Lenders sometimes require an appraisal to determine if a property is actually worth the amount they're lending the buyer to purchase it.

Appreciation
The increase to a property's value over time.

Assessment
The value of a property, set by the city, which determines how much property tax you need to pay. This amount often differs from market value, since properties are only re-assessed every few years.

Glossary B

Blended mortgage
This combination of two mortgages, one with a higher interest rate than the other, creates a new mortgage with an interest rate somewhere between the two rates. Homeowners can negotiate these with lenders to get a lower rate or to access equity without having to pay a penalty for breaking the mortgage.

Board of Directors / Condominium Board
A small council of elected, volunteer unit owners who act on behalf of members of the condominium corporation. They look after the running of the condominium, making sure money is collected (in the form of maintenance fees), bills are paid, and any violations of rules and by-laws are addressed. This group manages the condo’s reserve fund and has the power to determine or change building rules, as long as they respect the Ontario Condominium Act. They often have sub-committees for things like summer gardening or redecorating common areas, or organizing events like summer barbecues, etc. Anyone can run for the Board.

Bylaws
These are rules that govern a condominium corporation's internal operations. They ensure safety and security and specify any restrictions (e.g. pets, renting, renovations, etc.) to what is allowed in the building.

Glossary C

Chattels
Usually, chattels are the physical personal effects of an owner, which you take with you when you move (e.g. furniture, artwork, window coverings, etc.) Sometimes an offer requests that a seller include these items in the sale.

CMHC: Canada Mortgage and Housing Corporation, a government agency in place to improve living conditions/housing for Canadians. The CMHC is one of two sources for high-ratio mortgage insurance - GE Capital Mortgage Insurance Company of Canada is the other.

Closing costs
Costs that are in addition to the purchase price of a condominium, like legal fees and land transfer taxes, payable on the closing date.

Common elements
The parts of the condo building that aren’t considered part of individual units, and are jointly owned by all owners. These include amenities like the gym, lobby, lounges, swimming pool, elevators, parking garage, hallways, the roof, etc. Exclusive use common elements are the areas only unit owners have access to, like balconies, patios, terraces, etc., as opposed to elements like the lobby or the building grounds.

Conditional offer
An offer subject to conditions such as loan approval or an inspection.

Condominium
A condo unit is a property that you can buy, rent or sell. But a condominium is also a form of ownership: condo owners set rules for their building and share in costs like maintenance, repairs and improvements. Any type of home can be a condo, including high-rise and low-rise buildings, townhomes, and even detached homes. The word “condominium” is 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).” Read more here.

Condominium Act
Ontario's Condominium Act, passed in 1998, regulates development, registration and the running of condominium corporations within the province.

Condominium corporation
A condominium corporation is the legal entity that represents and governs the condo building. And you should care because as a condo owner, you’re a partner in it: every unit owner is a shareholder in a building's corporation. As owners, you own the building and the business, together. You make decisions together, and share in the costs of keeping it clean and in good repair with your maintenance fees. More on that here.

Condominium ownership
This covers the separate ownership and title of your individual unit as well as the shared ownership and costs of maintaining common elements.

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. (If you put less than 20% down, your mortgage will be considered "high ratio" and will require that you pay for mortgage loan insurance to protect the lender in case you default.)

Counteroffer
One party's response to the other party's offer, in writing, during purchase negotiations between buyer and seller.

Glossary D

Declaration
The constitution of the condominium that effectively creates the condominium and sets out the responsibilities of the owners and the corporation (e.g. repair and maintenance of common elements, common expenses, etc.).

Debt service ratio
This is the percentage of a borrower/buyer's gross income that can be used for housing costs, including mortgage payments, taxes and condo fees. By limiting how much debt Canadian buyers are allowed to take on, the CMHC is ensuring we don't bite off more than we can chew – and the banks face less risk from people defaulting on their loans. More on that here.

Deed
A legal document, signed by both parties, that transfers ownership of a property to the buyer.

Deposit
The amount a buyer pays as part of their offer to purchase - it's held by a third party until the closing date, at which point it's used towards the down payment.

Down payment
This is the buyer's cash payment toward the property:

Glossary E

Easement
This is the right to use another person's property for a specific purpose (e.g. a shared driveway).

Equity
Simply put, this is the percentage of your home that you own outright - an amount that goes up as you pay off your mortgage and the property appreciates over time. To figure that out, take your home's current value, subtract how much you still owe on your mortgage, and what's left will be how much equity you have. A home equity line of credit lets you borrow against that equity.

Glossary F

Final closing
The date on which you receive the title to your home (after registration in the case of pre-construction condos) is referred to as the final closing date.

Glossary G

GEMI
This is the GE Capital Mortgage Insurance Company of Canada, a private mortgage insurance company that's one of two sources of high-ratio mortgage insurance - the other is the CMHC.

Gross debt service ratio
The percentage of your monthly income that goes to mortgage payments, utilities, taxes, and half of condo fees. It's used to calculate how much you can afford. More on that here.

Glossary H

High-ratio mortgage
A mortgage for more than 80% of a property's appraised value or purchase price. If you put down less than 20%, you will need to pay for mortgage loan insurance.

Glossary I

Interim occupancy period
This is the difference between the occupancy date the builder gives you and when the condo finally closes and ownership transfers to you. In this time, you pay a fee that’s equivalent to your monthly mortgage, which goes to your builder, not towards your mortgage (a mortgage can’t be secured until you own your unit). And you have to pay this “rent” whether you’ve moved in or not. The reason behind this is that 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.

Glossary L

Land transfer taxes
When you're transferring ownership of a property anywhere in Ontario, you pay this tax. If you're buying in Toronto, you'll pay an additional municipal land transfer tax. What you pay ranges from 0.5% to 2.5%, depending on the value of the home. Rebates are available for first-time buyers. This land transfer tax calculator can help you figure out your costs.

Ontario Land Transfer Tax
0.5% on the first $55K
1% on anything between $55K and $250K
1.5% on anything between $250K and $400K
2% on anything over $400K

Toronto Land Transfer Tax
0.5% on the first $55K
1% on the amount between $55K – $400K
2% on anything over $400K

Lien
A lender's claim against a property, filed to ensure payment of a debt. If the property has been used as collateral for a loan, for example, and the borrower has failed to repay it, the lender can legally sell the property to get the money they're owed. Or, in another case, if an owner hasn't paid their property taxes. If you've made an offer on a condo, your real estate lawyer will check to see if there are any liens on it before proceeding. You can buy a property that has a lien on it - you'll just have to add a few steps to the transaction.

Listing agreement
This is a legal document that describes the property for sale. It's also an agreement between the listing broker and the seller that details the services that will be provided as well as payment terms.

Glossary M

Maintenance/condo fees
This is the monthly fee unit owners pay to cover the utilities, regular upkeep, management, administration and insurance for the building’s common areas. Fees vary widely according to the unit size, number of units, amenities, specific building and other factors, and are determined by the condo board.

MLS
The Multiple Listing Service is operated by local real estate boards (in Toronto, that's TREB, the Toronto Real Estate Board). It's a real estate database that lists available properties.

Mortgage
A loan you take to buy property in which the property itself is used as collateral.

Mortgage broker
A professional who offers a selection of mortgage products from several lenders. More about mortgage brokers here.

Mortgage life insurance
Pays off the mortgage in case the borrower dies so that his or her heirs don't have to assume the debt. Read more about whether this is a good idea or not.

Mortgage loan insurance
Mortgage loan insurance is government-backed insurance that protects your lender in case you can’t make your payments, and it’s mandatory if your down payment is less than 20%. The insurance gets added to your mortgage payments (or you can pay it in a lump sum if you prefer), and depends on the size of your down payment. You'll also have to pay the PST on your mortgage loan insurance in a lump sum at closing. Insurers include the Canadian Mortgage and Housing Corporation (CMHC), Genworth and others.

Mortgage rate
The percentage of interest paid on top of your loan principal.

Glossary O

Occupancy date
In pre-construction condos, this is the day homeowners get possession of their unit and can move in. But because new construction projects are often delayed, the occupancy date may change – the builder can adjust it with proper notice.

Occupancy fee
If you occupy your condo before the building is registered with the city, ownership won’t transfer to you. However, if your unit ready to live in, you will be required to pay the occupancy fee (kind of like rent, which goes to the builder), whether you’ve moved in yet or not. This monthly payment will be based on estimated maintenance fees for your unit, taxes and interest.

Offer to purchase
A legally binding agreement between you and the seller. It includes the price you're offering to pay, what you expect to be included with the property, and the financial conditions of sale (your financing arrangements, the closing date, etc.).

Glossary P

Pre-approved mortgage
This qualifies you for a mortgage amount before you start looking for a home. More on pre-approvals here.

Pre-approved mortgage certificate
An agreement from a lender that says you will get a mortgage for a set amount of money at a set interest rate.

Prepaid property tax/utility adjustments
You owe this if the seller has prepaid any property taxes or utility bills.

Principal
This is the mortgage amount initially borrowed, or the portion still owing on the mortgage. Interest is calculated on the principal amount.

Property manager
The property manager handles the day-to-day running of the condominium, taking care of everything from hiring staff to maintenance and repairs. If the condo doesn’t have a property manager, the board and volunteers assume this responsibility. Read about 5 Toronto property management companies.

Glossary R

Registration
This is when the condominium's declaration and description are formally approved by the city, the condominium corporation is formed, and buyers can legally become owners of their units.

Renewal
At the end of your mortgage term (usually 1-5 years), you can renegotiate your loan for a new term.

Reserve fund
This is a special account that’s separate from the condominium’s operating fund – a portion of your maintenance fees go into every month. It’s there to make sure that big repairs to common elements are covered (new roof, new windows, HVAC repairs, etc.) All condos have to have a reserve fund – it’s there to protect owners against big expenses. If a reserve fund doesn’t have enough money in it to cover an expense, however, the board may issue a special assessment, and have all owners pay a portion of the repair. Make sure to check the status of the reserve fund before you by having your agent and/or lawyer look at the building’s status certificate. Read more about reserve funds here.

Reserve fund study
Usually done during the building’s first year and every three years after, a reserve fund study looks at how much needs to be in the fund to ensure future repairs/replacements are covered. The results are provided to the board, who use that information to determine maintenance fees

Glossary S

Status certificate
This is a document with info about the operational, legal and financial status of the corporation. This document can contain the declaration, by-laws, rules and regulations, insurance information, reserve fund balance, other financial disclosures, legal description of the unit and management contract. It may also include details of any legal filings or judgments against the condominium. As a buyer, you should always review the status certificate – it’s a good indicator of the financial health of a condo.

Special assessment
If there’s a large repair your building needs, like a boiler replacement or roof repairs, the reserve fund should be able to cover it. But if it can’t, you may receive an “assessment,” which is a bill for your share of the cost – generally broken down into monthly payments over a certain amount of time.

Glossary T

Tarion Warranty Corporation
A private corporation set up by the Provincial Government to administer the Ontario New Home Warranties Plan Act, which protects purchasers of new homes. All builders in Ontario must enroll every home the build in the program. More on that here.

Title
Legal ownership of a property.

Glossary V

Variable-rate mortgage
In this type of mortgage, payments are fixed, but the interest rate 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.

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