Glossary of terms

These are some of the words or terms used in a real estate transaction in Canada.

Amortization period:

The actual number of years it will take to pay back your mortgage loan.

Appraised value:

An estimate of the value of the property, conducted for the purpose of mortgage lending by a certified appraiser.


What you own or can call upon. Often used in determining net worth or in securing financing.


Allows the buyer to take over the seller’s mortgage on the property.

Assumption Agreement:

A legal document signed by a buyer that requires the buyer assume responsibility for the obligations of an existing mortgage. If someone assumes your mortgage, make sure that you get a release from the mortgage company to ensure that you are no longer liable for the debt.

Blended payments:

Payments consisting of principal and interest components, paid during the amortization period of a mortgage.


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.

Buyer’s Agent (also known as "Buyer’s Broker" or "Purchaser’s Agent"):

A person or firm representing the buyer. A Buyer’s Agent’s primary allegiance is to the buyer. The buyer is the Buyer Agent’s client.

Buyer Brokerage Agreement:

A written agreement between the buyer and the buyer’s agent, outlining the agency relationship between the two parties and the manner in which the buyer’s agent will be compensated. In some provinces, a buyer agency relationship evolves automatically, without a written agreement.


The person being represented by an agent. The agent owes the client the duties of utmost care, integrity, confidentiality and loyalty.

Closed mortgage:

A mortgage that locks you into a specific payment schedule. A penalty usually applies if you repay the loan in full before the end of a closed term.


Canada Mortgage and Housing Corporation. A Crown corporation providing information services and mortgage loan insurance.

Condominium fee:

A payment among owners, which is allocated to pay expenses.

Conventional mortgage:

A mortgage loan issued for up to 80% of the property’s appraised value or purchase price, whichever is less.


An asset, such as term deposit, Canada Savings Bond, or automobile, that you offer as security for a loan.


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.

Credit Scoring:

A system that assesses a borrower on a number of items, assigning points that are used to determine the borrower’s credit worthiness.


A person who receives valuable information and assistance from a real estate Broker or salesperson, but is not represented by that individual.

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.

Demand Loan:

A loan where the balance must be repaid upon request.


A sum of money deposited in trust by the purchaser on making an offer to purchase. When the offer is accepted by the vendor (seller), the deposit is held in trust by the listing broker, lawyer, or notary until the closing of the sale, at which point it is given to the vendor. If a house does not close because of the purchaser’s failure to comply with the terms set out in the offer, the purchaser forgoes the deposit, and it is given to the vendor as compensation for the breaking of the contract (the offer).

Down payment:

The buyer’s cash payment toward the property that is the difference between the purchase price and the amount of the mortgage loan.

Dual Agent:

A real estate Broker or salesperson who acts as agent for both the seller and the buyer in the same transaction. Both buyer and seller are the agent’s clients.


The difference between the home’s selling value and the debts against it.

Financial Institutions:

Banks, credit unions, insurance or trust companies.

First Mortgage:

A debt registered against a property that has first call on that property.

Fixed-Rate Mortgage:

A mortgage for which the interest is set for the term of the mortgage.

GE Capital Mortgage Insurance Company:

GE Capital Mortgage Insurance Company is the only private sector source of mortgage insurance to lenders in Canada.

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%.

High-ratio mortgage:

A mortgage that exceeds 80% of the home’s appraised value. These mortgages must be insured for payment.

Interest rate:

The value charged by the lender for the use of the lender’s money, expressed as a percentage.

Interest Adjustment Date (IAD):

The date on which the mortgage term will begin. This date is usually the first day of the month following the closing. The interest cost for those days from the closing date to the first of the month are usually paid at closing. That is why it is always better to close your deal towards the end of the month.

Interest-Only Mortgage:

A mortgage on which only the monthly interest cost is paid each month. The full principal remains outstanding. The payment is lower than an amortized mortgage since once is not paying any principal.

Land transfer tax, deed tax or property purchase tax:

A fee paid to the municipal and/or provincial government for the transferring of property from seller to buyer.

Listing Agreement:

The legal agreement between the listing Broker and the seller, setting out the services to be rendered, describing the property for sale and stating the terms of payment. A commission is generally payable to the Broker upon closing.

Maturity date:

The end of the term of the loan, at which time you can pay off the mortgage or renew it.

MLS®, Multiple Listing Service®:

These are trademarks owned by The Canadian Real Estate Association. They are used in conjunction with a real estate database service, operated by local real estate boards, under which properties may be listed, purchased or sold. An MLS® listing means REALTORS® have agreed to work together for the marketing of a listing.


The financial institution or person that lends the money.


The financial institution or person (lender) who is lending the money using a mortgage.

Mortgage insurance:

Applies to high-ratio mortgages. It protects the lender against loss if the borrower is unable to repay the mortgage.

Mortgage life insurance:

Pays off the mortgage if the borrower dies. Mortgagor: The borrower.

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.

Open mortgage:

Allows partial or full payment of the principal at any time, without penalty.


Principal, interest, and property tax due on a mortgage. If your down payment is greater than 20% of the purchase price or appraised value, the lender will allow you to make your own property tax payments.


A mortgage option that enables borrowers to take their current mortgage with them to another property, without penalty.

Pre-approved mortgage:

Qualifies you for a mortgage before you start shopping. You know exactly how much you can spend and are free to make a firm offer when you find the right home.

Prepayment privileges:

Voluntary payments that are in addition to regular mortgage payments.


The lowest rate a financial institution charges its best customers.


The amount borrowed or still owing on a mortgage loan. Interest is paid on the principal amount.

Prepayment Penalty:

A fee charged a borrower by the lender when the borrower prepays all or part of a mortgage over and above the amount agreed upon. Although there is no law as to how a lender can charge you the penalty, a usual charge is the greater of the Interest Rate Differential (IRD) or 3 months interest.


Paying off the existing mortgage and arranging a new one or renegotiating the terms and conditions of an existing mortgage.


Trademark identifying real estate professionals in Canada who are members of The Canadian Real Estate Association, and as such, subscribe to a high standard of professional service and to a strict Code of Ethics.

Rate Commitment:

The number of days the lender will guarantee the mortgage rate on a mortgage approval. This can vary from lender to lender anywhere from 30 to 120 days.


Renegotiation of a mortgage loan at the end of a term for a new term.

Second mortgage:

Additional financing, which usually has a shorter term and a higher interest rate than the first mortgage.


The length of time the interest rate is fixed. It also indicates when the principal balance becomes due and payable to the lender. The terms available are: 6 month, 1,2,3,4,5,6,7,10 year terms, and the interest rates will be fixed for whatever term once chooses.


Legal ownership in a property.

Total Debt Service (TDS) Ratio:

It is the other mathematical calculations used by lenders to determine a borrower’s capacity to repay a mortgage. It takes into account the mortgage payments, property taxes, approximate heating costs, and 50% of any maintenance fees, and any other monthly obligations (i.e. personal loans, car payments, lines of credit, credit card debts, other mortgages, etc.), and this sum is then divided by the gross income of the applicants. Ratios up to 40 % are acceptable.

Variable rate mortgage:

A mortgage with fixed payments that fluctuates with interest rates. The changing interest rate determines how much of the payment goes towards the principal.

Vendor take-back mortgage:

When the seller provides some or all of the mortgage financing in order to sell their property.

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