Real Estate Lingo 101
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The real estate industry is full of complex jargon that not everyone has time to learn. Here’s a quick crash course to understanding 15 commonly used real estate terms. You might come across these terms during the process of buying or selling a home.
Amortization: Paying off a debt, such as a mortgage, by installments. The conventional amortization period for a mortgage is anywhere between 15 and 25 years. The shorter the amortization period, the less interest you have to pay.
Appraisal: An estimate of a property's value.
Blended payments: Payments consisting of principal and interest components, paid during the amortization period of a mortgage.
Broker: A person licensed by the provincial or territorial government to trade in real estate. Real estate brokers may form companies or offices, which appoint sales representatives to provide services to the seller or buyer, or they may provide the same services themselves. In parts of Canada, brokers are referred to as agents.
Closing: The day the legal title to the property changes hands.
Commission: An amount agreed to by the seller and the real estate broker/agent and stated in the listing agreement. It is payable to the broker/agent on closing and shared, if applicable, among those salespeople involved in the sale.
Debt-Service Ratio: The measurement of debt payments to gross household income which may include, in addition to the main wage earner's salary, salaries of other wage earners, commissions, bonuses, overtime, etc.
Equity: The difference between the value of the property and the amount owing (if any) on the mortgage.
Financial Institutions: Banks, credit unions, insurance or trust companies.
Gross Debt Service: The amount of money needed to pay principal, interest, taxes and sometimes, energy costs. If the dwelling unit is a condominium, all or a portion of common fees are included, depending on what expenses are covered.
Gross Debt Service Ratio: Gross debt service divided by household income. A rule of thumb is that GDS should not exceed 30%. It is also referred to as PIT (Principal, Interest and Taxes) over income. Sometimes energy costs are added to the formula, producing PITE, which moves the rule of thumb GDS to 32%.
Mortgage: A contract providing security for the repayment of a loan, registered against the property, with stated rights and remedies in the event of default. Banks consider both the property (security) and the financial worth of the borrower (covenant) in deciding on a mortgage loan.
An Offer of Purchase and Sale: The document through which the prospective buyer sets out the price and conditions under which he or she will buy the property.
Term: The actual life of a mortgage contract-- from six months to ten years -- at the end of which the mortgage becomes due and payable unless the lender renews the mortgage for another term (See Amortization).
Variable-rate Mortgage: A mortgage in which payments are fixed, but the interest rate moves in response to trends. If interest rates go up, a larger portion of your payment goes to the interest; if rates go down, more goes to cover the principal.
If there are any more terms that you are confused about when it comes to a real estate transaction email us and we'd be glad to clear it up for you.
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JOSHUA CAMPBELL (@knowledgebrkr)
Real Estate Broker
Coldwell Banker The Real Estate Centre, Brokerage
249 Avenue Road • Newmarket, ON L3Y 1N8