For many, real estate lingo can be confusing, and this is understandable. There are a lot of terms that are rarely heard outside of the context of real estate transactions. To help our clients cut through the confusion, we have prepared this glossary of real estate terminology.
Adjustable Rate Mortgage – A type of mortgage where the interest rate and monthly payments can be altered to keep pace with market conditions. An ARM, as it is called, may be adjusted on a monthly basis, if needed. The term is sometimes used interchangeably with variable rate mortgage.
APR – Annual Percentage Rate. The yearly amount of interest on a mortgage, expressed as a percentage.
Adverse Possession – When an individual who is not the owner takes control of a property without consent.
Amortization Period – The length of time required to completely pay off a mortgage loan, provided that regular payments are made according to schedule. The standard amortization period of mortgages is 25 years, although sometimes it is significantly shorter.
Appraisal – To calculate the value of a property. Appraisals must be done by qualified individuals in order to be valid for mortgage purposes.
Conventional Mortgage – A mortgage that is not secured by Canada Mortgage and Housing Corporation (CMHC) or a comparable organization (e.g., GE Capital).
Closed Mortgage – A type of mortgage whose terms cannot be altered or renegotiated. It is generally not possible to pay off a closed mortgage early without penalty.
Default – A mortgagor’s failure to obey one or more obligations set forth in the mortgage agreement (e.g., stopping monthly payments). Remaining in default can endanger the mortgagor’s right to the property.
Equity – The mortgagor’s share in the value of a home. It is calculated by subtracting the current amount of the mortgage from the market value of the property. The balance is the equity.
Foreclosure – A court-ordered process that allows the mortgagee to take possession of a property that is in default.
Maturity Date – The date on which the principal on a mortgage loan is due to be fully paid.
Mortgage – A type of loan used to purchase property. The loan consists of the principal plus interest (mortgage rate). The person who takes out a mortgage loan—the borrower—is called a mortgagor, while the lender is called the mortgagee. Chargor and chargee are alternative terms for these two entities.
Mortgage Broker – The individual who acts as the middleman between the mortgage lender and the borrower.
Open Mortgage – A type of mortgage whose terms can be adjusted. It can also be paid off at any time. For example, in an open mortgage the borrower can elect to pay extra in order to reduce the principal earlier than scheduled.
Rate Cap – The upper limit of an adjustable interest rate. Also called a capped rate.
Refinancing – Replacing an old mortgage with a new one, often with terms more beneficial to the mortgagor.
Underwriter – A person who is responsible for approving a mortgage loan. Underwriters are employed in-house by the mortgage lender or by an outside organization such as a bank.
Term – The length of time in which an interest rate associated with a mortgage is valid.
Variable Rate Mortgage – A type of mortgage where the interest changes in accordance with market conditions. In a variable rate mortgage, the interest can be altered but the monthly payments cannot—this distinguishes it from an adjustable rate mortgage (ARM). In practice, however, these two terms are often used interchangeably.