Key Points
- Amortization: the total life of your mortgage (e.g., 25 years)
- Term: the length of your current rate contract (e.g., 5 years)
- GDS/TDS: ratios lenders use to determine how much you can borrow
- CMHC insurance: required when your down payment is under 20%
- Prime rate: the rate banks use as a benchmark for variable mortgages
Mortgages come with their own vocabulary. Here's your glossary — plain language, no fluff, just the terms you actually need to know.
Amortization Period: The total time it takes to fully pay off your mortgage — typically 25 years in Canada, though some lenders now offer 30 years. Longer amortization = lower monthly payments but more interest paid over time.
Term: How long your current mortgage contract lasts — typically 1 to 5 years. At the end of your term, you renew (or pay off the mortgage). This is different from your amortization period.
Fixed Rate: An interest rate that stays the same for your entire term. Predictable payments. Generally higher than variable at the outset but with no surprises.
Variable Rate: An interest rate that fluctuates with the lender's prime rate. Can go up or down during your term. Historically lower than fixed, but with more uncertainty.
Prime Rate: The benchmark interest rate set by Canadian banks, heavily influenced by the Bank of Canada's overnight rate. Variable mortgages are quoted as 'prime minus' (e.g., prime – 0.5%).
GDS (Gross Debt Service Ratio): The percentage of your gross monthly income that goes toward housing costs. Maximum typically 39% with most lenders.
TDS (Total Debt Service Ratio): All your monthly debt payments (housing + car + credit cards + student loans) as a percentage of gross income. Maximum typically 44%.
CMHC Insurance / Mortgage Default Insurance: Required when your down payment is less than 20%. Protects the lender (not you) in case of default. Paid as a one-time premium added to your mortgage.
Pre-Approval: A lender's commitment to lend you up to a specified amount at a locked-in rate (usually for 90–120 days), subject to providing acceptable documentation and finding a suitable property.
Stress Test: A federal regulation requiring lenders to qualify you at a rate 2% higher than your actual rate (or 5.25%, whichever is higher), to ensure you can afford your mortgage if rates rise.
Equity: The difference between your home's market value and what you owe on your mortgage. Builds over time through mortgage payments and home appreciation.
HELOC (Home Equity Line of Credit): A revolving credit line secured against your home's equity. Works like a credit card with a much lower interest rate.
Prepayment Privilege: The ability to make extra payments against your principal beyond your regular payments, without penalty. Most mortgages allow 10–20% of the original principal per year.
Prepayment Penalty: The fee charged if you break your mortgage before the end of your term. For variable mortgages, typically 3 months' interest. For fixed, it can be much higher (IRD calculation).
Portability: The ability to transfer your existing mortgage (rate and terms) to a new property when you move. Not all mortgages are portable.
Still have questions about any of these? That's what I'm here for.
Have a specific question about your situation? Every mortgage is unique. This article covers the general principles, but your circumstances might change the picture. Reach out and I'll give you a direct, honest answer.