🏡 Real Estate Terminology Guide

 
Annual Income

This is the combined annual income for you and your co-borrower. Include all income before taxes, such as:

Base salary
Commissions
Bonuses
Overtime
Tips
Rental income
Investment income
Alimony or child support
 
Down Payment

The general rule is to put down 20% of the home’s price, but some mortgage loans require as little as 5%.

Your down payment reduces the amount of your mortgage loan, so the more you put down, the lower your monthly payments — or the more house you can afford.

 
Other Monthly Debts

Include all recurring monthly debt obligations for you and your co-borrower:

Minimum credit card payments
Auto loans
Student loans
Alimony or child support
Rent or mortgage (not including the new home you’re purchasing)
Personal loans and rental property expenses
Do NOT include:

Credit cards paid off in full each month
Existing housing costs that will be replaced by the new mortgage
The new mortgage you're applying for

Loan Term

Loan terms impact your interest rate and monthly payment. Common terms in Canada include:

1-year, 3-year, or 5-year terms
With amortizations over 25 or 30 years

Loan Type

Canada’s two most common mortgage types are:

✅ Variable Mortgage

Definition: Rate changes based on the market "prime rate."
Rate: Usually expressed as prime minus a discount (e.g., prime - 0.5%).
Types:
Adjustable Rate Mortgage (ARM): Payment amount changes with rates
Fixed Payment Variable Rate: Monthly payment stays the same, but interest/principal split changes
Pros:
Historically cheaper
Flexible for refinancing
Cons:
Uncertainty in payments
Potential for rising costs
Best for: Buyers who are comfortable with fluctuations and want to save long-term
✅ Fixed Mortgage

Definition: Rate is locked in for the entire term
Rate: Stays the same regardless of market conditions
Pros:
Predictable payments
Peace of mind from rising rates
Cons:
Generally higher than variable
Penalties for early termination
Best for: Buyers who value budgeting stability and want payment certainty

Choosing Between Variable and Fixed

Your choice depends on:

Risk Tolerance: Are you comfortable with rate fluctuations?
Financial Situation: Can you manage potential increases in payments?
Market Outlook: Are interest rates likely to rise or fall?
Long-Term Plans: Will you stay in the home or refinance soon?

Other Key Terms

🏦 Mortgage Term

The length of your current mortgage agreement — typically 1 to 5 years, though longer terms exist.

 
📅 Amortization Period

The total time to pay off the mortgage in full, often 25 or 30 years in Canada.

 
💰 Interest Rate

Often pre-filled in online calculators using the average rate. Your actual rate depends on:

Credit score
Loan type
Down payment
 
🏡 Property Tax

Estimated based on home value and included in your monthly payment. This value is usually editable in advanced calculators.

 
🛡️ Home Insurance

Typically required by lenders. Protects the property and its contents — you can adjust the amount based on quotes from providers.

 
🏢 STRATA Fees

Monthly fees paid by owners of strata properties (like condos or townhomes). These cover:

Building maintenance
Shared amenities
Long-term reserve planning
 
📊 Debt-to-Income (DTI)

DTI is calculated as:

Monthly debt payments ÷ Gross monthly income × 100

Conventional limit: 36%
FHA loans may allow up to 41%
Under 20% is considered excellent
 
✅ Conclusion

Understanding real estate terminology is the first step toward making smart, confident home buying decisions. Whether you’re budgeting for your first home in Surrey, BC, or comparing mortgage types, this guide is here to help.

Tip: Always speak with a mortgage broker or financial advisor to get recommendations tailored to your unique situation.