Commonly Used Terms in Real Estate Banking

Buying your first home can be stressful, however, understanding the meaning of the economic terminology that is unique to the real estate industry can help alleviate some of that stress. For this reason, the team at Connectimmo has carefully compiled a brief list of some of the key real estate banking phrases you should familiarize yourself with.

Using the information in this blog will not only help familiarize you with some of the common terminologies but will also help you avoid any major mistakes when purchasing your first property.

Down Payment:

The down payment is the amount you must spend out of your own pocket when you buy a home. It is the portion of the sales price that a lender cannot cover.

The down payment % required varies depending on the transaction price and the type of property. If the loan is guaranteed by mortgage loan insurance, the minimum down payment is usually 5% of the full value. If the loan is not insured, you must make at least a 20% down payment.

Property Taxes:

You must pay the municipality these taxes in order to cover your proportionate share of municipal costs. Municipal taxes are calculated based on the assessed value of your property and the municipality’s set tax rate. These taxes are typically payable in installments.

Payments designated for paying property taxes may also be offered by your financial institution to be deducted from your mortgage loan payment at the same time.

HBP – Home Buyers Plan:

If you’ve never owned a home before, the Home Buyers’ Plan enables you to withdraw money from your RRSP tax-free in order to purchase your first home.

You have a 15-year debt that you must pay back in installments each year. The amount owed is applied to your income for the current year if you are unable to make a repayment. Making the initial down payment using the HBP can be very beneficial.

Mortgage:

A security tied to the ownership of the actual home is referred to as a “mortgage.” A mortgage on the home must be used to arrange financing for the acquisition of the property.

In other terms, a loan used to buy a property is known as a “mortgage loan” and is secured by the home. The lender has the authority to seize the home that is protected by the mortgage if you don’t pay off your mortgage.

Amortization:

You must determine the length of time you require to repay a mortgage loan upon application. This process of paying off your mortgage over time is referred to as amortization.

This time frame is currently restricted to 25 years by law. The mortgage payments will be lower the longer it takes to pay them off however, be cautious because your interest costs will likely increase during the repayment period.

Final Thoughts

Being guided by a real estate broker is the best way to lessen the tension involved in buying your first home and can help you recognize and apply the terminology listed above. A real estate broker can help you understand every detail of the transaction.