There is so much “jargon” to keep up on when buying or selling a home! Use this handy glossary to get to know what these terms mean in the context of the real estate industry.
Appraisal: Canadian mortgage lending rules require lenders to acquire an estimate of a home’s value by a registered third party real estate appraiser, specifically a firm that has no stake in the transaction. The underwriter of your mortgage lender will choose an appraiser from their approved list. Some lenders will cover the cost of appraiser and some will pass that cost on to the buyer or seller. The appraisal is generally done before the purchase is finalized.
Costs of clearing title: Any outstanding financial encumbrances must be removed before your property transfers ownership on title. For example, if you have a secured loan against your property, deferred municipal taxes, or any liens, your lawyer or notary require proof of “clear title” before they process the transfer. Financial notations are generally shown on the title search obtained at the time of listing and will be double checked again by the notary or lawyer processing the transaction.
GST on new homes: New homes that have not been previously resided in are subject to the provincial 5% Goods and Services Tax. There is a rebate and partial rebate for new homes priced up to $450,000.00. It’s also important to note real estate transaction services, such as commission and legal fees, are also subject to GST.
Inspection: A certified home inspector will perform a visual inspection of the property you intend to purchase and provide a report of any deficiencies or items in need of repair. A certified home inspector is typically hired by the buyer for their information purposes and should be completed before the purchase is finalized.
Insurance binder: The insurance binder represents the agreement between you and the insurance company that a policy will be issued. Your lawyer or notary will require an insurance binder be issued on or before the closing. This is just a digital document, not an actual three ring bound book.
Land tile registration: Land title and survey authority charge a filing fee for any change in the title to lands, whether it be an inheritance, registration of a co applicant, or a traditional sale and purchase transfer.
Lawyer/notary legal expenses: It’s advisable to hire a lawyer or notary to prepare the final title transfer documents which moves the title of real property from seller to buyer. Although land owners may file registrations independently at the land title office, the majority of land title transfers are formally executed by legal counsel.
Mortgage discharge: You may have a one-time filing fee payable to close out your mortgage and discharge it from your land title registration mortgage cancellation and discharge. This fee is at the discretion of your mortgage lender.
Mortgage principal repayment: The outstanding principal balance of your mortgage becomes payable at the time of your closing. The principal portion is usually clearly separated from the interest portion on your mortgage statements provided by your lenders. In some cases your repayment may include an interest payment equivalent to the entire mortgage term balance; although highly unusual it is best to check with your lender to fully understand the principal repayment requirements.
Mortgage repayment penalty: If you are selling your property outside of the mortgage term agreement with your lender, you will have a penalty payable in lieu of the interest the lender would have earned if you had fulfilled your entire original mortgage term. In general the penalty could be equivalent to three months of interest and/or a rate differential penalty if rates have shifted since the original commencement date of your financing.
Mortgage set up fee: Your lender may change an initialization fee at the commencement of your mortgage.
Municipal property tax: Municipal taxes are due in the current tax year, including the first regular business day after Canada Day. Your lawyer or notary will split the year’s tax payment between the buyer and seller on the completion day. Each portion will be prorated respective to the number of days each party has owned the property.
Real estate brokerage commission: In our region it is customary for the Seller to pay commission to both the seller’s representative and the buyer’s representative. This amount is set out in the listing agreement, and is payable at the time of your closing (completion date). Your lawyer or notary will direct payment of real estate commission to your brokerage.
Property insurance: All mortgage lenders in Canada require you protect your home with fire and property insurance.
Property Transfer Tax: Most first time home buyers will qualify for a property transfer tax exemption but restrictions do apply. For property of up to two million dollars the tax rate for resident purchasers is 1% on the first $200,000 and 2% on the balance, and 3% for purchases over two million dollars. For non-resident owners there is an additional 15% tax. PTT is payable at the time of completion as a one-time fee.
Strata fee adjustment (if applicable): Strata properties will split up the monthly strata maintenance fees based on the month and day of your closing. The amount will be prorated equal to the number of days the seller and buyer have owned the property being transferred.
Strata forms (if applicable): Strata properties require a set of forms to be completed prior to transfer of a strata property. Your lawyer or notary will file the required documents on your behalf and order the strata transfer forms.
Survey certificate: If available your lender may accept a survey as proof of conforming dwelling. The survey will show your property boundaries and placement of primary, secondary building and accessory buildings. In combination with the appraisal it is the lender’s due diligence to ensure they are granting a mortgage on a legitimate investment. If the survey certificate is unavailable your lender may require you purchase title insurance to protect them in the event the property’s mortgage is deemed invalid or unenforceable.
Title insurance: If the survey certificate is unavailable your lender may require you purchase title insurance to protect them should the property’s mortgage be deemed invalid or unenforceable. Mortgage lenders require either a survey certificate or title insurance.