MORTGAGE GLOSSARY:
COMMON MORTGAGE TERMS
50–50 Mortgage (Hybrid Mortgage)
A mortgage that combines fixed and variable interest-rate portions. The fixed portion provides greater rate stability, while the variable portion can benefit if rates decrease. The allocation between the two portions varies by mortgage product.
ACCELERATED BI-WEEKLY PAYMENTS
A payment schedule where half of the monthly mortgage payment is made every two weeks. This results in the equivalent of one additional monthly payment each year, helping reduce interest costs and pay the mortgage off sooner.
AMORTIZATION PERIOD
The estimated length of time required to repay a mortgage in full based on the mortgage terms and payment schedule. Amortization periods vary depending on the mortgage, down payment, eligibility and lender requirements.
BRIDGE LOAN
Short-term financing that may help cover the timing gap between purchasing a new home and receiving proceeds from the sale of an existing home.
CLOSED MORTGAGE
A mortgage that generally limits how much additional principal can be repaid during the term without a prepayment charge. Closed mortgages typically offer lower rates than comparable open mortgages.
CONVENTIONAL MORTGAGE
A mortgage generally associated with a down payment of 20% or more and a loan-to-value ratio of 80% or less. Mortgage default insurance is typically not required, although a lender may require insurance in certain circumstances.
CREDIT SCORE
A numerical score, usually ranging from 300 to 900, based on information in your credit history. Lenders may consider your credit score and credit report when assessing a mortgage application.
DOWN PAYMENT
The amount of money you contribute upfront toward the purchase price of a home. The mortgage generally finances the remaining eligible amount.
FIXED-RATE MORTGAGE
A mortgage with an interest rate that remains the same for the entire mortgage term, providing greater payment and interest-rate predictability.
Fixed mortgage rates are influenced by lenders' funding costs and broader market interest rates. The Bank of Canada does not directly set mortgage rates.
GDS RATIO (GROSS DEBT SERVICE)
The percentage of gross household income used for housing-related costs, generally including mortgage payments, property taxes, heating costs and a portion of applicable condominium fees.
HELOC (HOME EQUITY LINE OF CREDIT)
A revolving line of credit secured by your home. The available credit is based partly on your home equity, and you generally pay interest only on the amount you borrow.
HIGH-RATIO MORTGAGE
A mortgage where the buyer has a down payment of less than 20% of the purchase price. For eligible purchases, mortgage default insurance is generally required.
LOAN-TO-VALUE RATIO (LTV)
The percentage of a property’s value that is financed by a mortgage or other loan secured against the property.
MORTGAGE AFFORDABILITY
An estimate of how much mortgage financing may be manageable or available based on factors such as income, debts, expenses, down payment, interest rates and applicable qualification requirements.
MORTGAGE REFINANCING
Replacing or restructuring an existing mortgage with new financing, potentially to change mortgage terms, consolidate eligible debt or access available home equity. Costs and qualification requirements may apply.
MORTGAGE RENEWAL
Entering into a new mortgage term when the current term ends. The new term may have a different interest rate, payment amount and other conditions.
MORTGAGE STATEMENT
A statement provided by your lender containing key information about your mortgage, such as the outstanding balance, interest rate, payments and other applicable mortgage details.
MORTGAGE TERM
The period during which your mortgage contract is in effect. Terms may range from a few months to five years or longer, and the mortgage may have a fixed or variable interest rate.
OPEN MORTGAGE
A mortgage that generally allows you to make additional payments or repay the mortgage in full without a prepayment penalty. Open mortgages typically have higher interest rates than comparable closed mortgages.
MORTGAGE PRE-APPROVAL
A preliminary assessment that provides an indication of how much you may be able to borrow based on the financial information reviewed by the lender.
A pre-approval is not a final mortgage approval. Final approval remains subject to verification of the application, supporting documents, property and lender requirements.
PREPAYMENT PENALTY
A fee a lender may charge if you repay more than permitted, break a closed mortgage before the end of its term, transfer it early or repay the mortgage in full before maturity.
PREPAYMENT PRIVILEGE
The amount you may pay toward your mortgage in addition to your regular payments without triggering a prepayment penalty. The amount and conditions vary by mortgage contract and lender.
TDS RATIO (TOTAL DEBT SERVICE)
The percentage of gross income required to cover housing costs plus other debt obligations, such as loans and credit-card payments.
TITLE INSURANCE
Insurance that may protect against certain financial losses relating to title defects, liens, title fraud and other covered issues affecting legal ownership of a property, subject to the policy terms.
VARIABLE-RATE MORTGAGE
A mortgage with an interest rate that may increase or decrease during the term. Variable mortgage rates are commonly based on the lender’s prime rate plus or minus an adjustment.
Each financial institution sets its own prime rate, which is influenced by factors including the Bank of Canada’s policy interest rate. Depending on the mortgage, payments may remain fixed or change when interest rates change.