Glossary
Mortgage terms in plain English
The words lenders use, without the definitions that only make sense if you already knew the answer.
- Amortization
- The total length of time to pay the mortgage to zero, commonly 25 or 30 years. Different from the term.
- Term
- The length of your current contract with the lender, commonly 1 to 5 years. At the end you renew, switch or pay out.
- Semi-annual compounding
- How Canadian fixed-rate mortgages calculate interest, twice a year rather than monthly. It is why the Canadian payment formula differs from the American one.
- Stress test
- Qualifying at the higher of a benchmark rate or your contract rate plus two percent, rather than at the rate you will actually pay.
- GDS and TDS
- Gross and total debt service ratios. Housing costs against income, and all debt payments against income. The two numbers that decide how much you can borrow.
- Loan to value (LTV)
- The mortgage divided by the property's value. Above 80% the mortgage must be insured.
- Default insurance
- Insurance protecting the lender when you put down less than 20%. You pay the premium, usually added to the mortgage. Provided by CMHC, Sagen or Canada Guaranty.
- Interest rate differential (IRD)
- A penalty formula on fixed mortgages based on the gap between your rate and current rates. Can be far larger than three months interest.
- Standard charge
- A mortgage registered for exactly the loan amount. Usually cheaper and simpler to switch lenders at renewal.
- Collateral charge
- A mortgage registered for more than the loan amount. Easier to borrow more later, usually more expensive to leave.
- Prepayment privileges
- How much you can pay down annually without penalty, as a lump sum and as a payment increase.
- Porting
- Moving your existing mortgage and rate to a new property when you sell and buy, avoiding the penalty.
- Blend and extend
- Combining your existing rate with a current rate into a new blended rate and a new term, without paying a penalty.
- Monoline lender
- A lender that does mortgages only and has no branches. Usually competitive on rate and terms, accessible through brokers.
- A, B and private lenders
- The three tiers of Canadian mortgage lending. A is prime and cheapest. B is alternative, priced for risk. Private is equity-driven and most expensive.
- Bridge financing
- Short-term funds covering the gap when your purchase closes before your sale.
- Debt service coverage (DSCR)
- On commercial property, net operating income divided by annual mortgage payments. Most lenders want 1.20 or better.
- Status certificate
- The condominium corporation's disclosure package. Lenders review it for the reserve fund, special assessments and rules.
- Land transfer tax
- A provincial tax on property purchases. Toronto charges an additional municipal one, so Toronto buyers pay it twice.
- Notice of Assessment (NOA)
- CRA's summary of your filed tax return. Lenders use it to verify income and to confirm taxes are current.