- Adjustable Rate Mortgage (ARM)A mortgage where the interest rate and payment float with a specified benchmark rate, usually prime rate. Most floating rate mortgages in Canada are ARMs, although many lenders offer variable rates with fixed payments. See also: Variable Rate Mortgage
- All-in-One MortgageAll-in-one mortgages combine your mortgage and personal banking accounts. Because the interest is calculated daily, any deposits made into the account, such as a paycheque, immediately offset your debt. That reduces the debt balance that your interest is calculated on, thus saving you interest.
- Alt-A MortgagesShort for “Alternative A,” an Alt-A mortgage is considered riskier than a traditional “A” mortgage (i.e., “prime” mortgage) but less risky than a subprime mortgage. Mortgages can fall into this classification if the borrower cannot provide complete income documentation, has a lower credit(...)
- AmortizationThis refers to the amount of time it takes to repay a mortgage in full. For example, a mortgage with an amortization period of 25 years will be fully paid off in its 25th year, assuming the payments are equal, that all payments are made on time, and that no extra payments are made. Spy(...)
- ArrearsA mortgage that currently has one or more overdue payments is said to be “in arrears.” Canadian mortgage arrears statistics most commonly refer to borrowers who are 90 days or more past due on their payments.
- Assumable MortgageThis refers to a mortgage that can be “assumed” by a property’s new owner. The outstanding mortgage and its terms can be transferred from the original homeowner to the buyer. The new borrower must apply, qualify for the mortgage and be approved by the lender. This arrangement can be(...)
- Bank of CanadaAs Canada’s central bank, the Bank of Canada’s official mandate is to “promote the economic and financial welfare of Canada.” It does this by implementing monetary policy, primarily through setting the target for the overnight rate, or the “key policy rate.” It manipulates this policy rate in(...)
- Bankers’ acceptance (BA)A bankers’ acceptance is a debt instrument that is guaranteed by a bank and used to raise short-term funds in the money market. Lenders refer to bankers’ acceptance yields when setting variable mortgage rates. The 30-day BA is therefore one of the leading indicators of variable-rate mortgage(...)
- Basis Points (bps)
- Big Six Banks (Big 6)The term “Big 6 Banks” is used to describe Canada’s six largest banks: Bank of Montreal (BMO) Canadian Imperial Bank of Commerce (CIBC) National Bank of Canada (NBC) Royal Bank of Canada (RBC) Scotiabank (Scotia) TD Bank (TD)
- Blended Rate
- Breaking a Mortgage
- Bulk Insurance (Portfolio Insurance)
- Closed MortgageA closed mortgage cannot be repaid or refinanced without penalty until the end of its term. The amount of extra payments made towards a closed mortgage in any given year typically cannot exceed the lender’s limit, which usually ranges from 10% to 25% of the original mortgage balance per(...)
- Co-Borrower (Co-Signor)Not to be confused with a guarantor, a co-borrower is an additional party who applies for the mortgage and is jointly responsible for its repayment. If a husband and wife both apply for a mortgage, they are considered co-borrowers.
- Collateral Charge
- Contract Rate
- Conventional Mortgage
- Conversion Rate
- Credit Score (Beacon Score)This is a number assigned to virtually anyone who has ever borrowed money and has a credit history (be it a credit card, car loan, mortgage or any other personal loan). Lenders use it to determine their ability to repay a loan. Credit scores range from 300 and 900 and are calculated based(...)
- Credit Utilization
- Debt RatioA person's monthly obligations divided by their gross monthly income. This key calculation helps a lender understand if you can make your mortgage payments. Lenders are most interested in a person's minimum required housing expenses, loan payments, credit cards and support(...)
- Direct Lender
- Discretionary Rate
- DoFDoF is short for the "Department of Finance."
- Dove/DovishA dove takes the opposite viewpoint of a hawk. A dove is someone who has relatively low inflation expectations and favours lower interest rates in order to raise future inflation to an acceptable level. See also: Hawk (Hawkish)
- Down PaymentThe money (a.k.a. equity) that you contribute when buying a property. The more money you put down, the less you have to finance. The minimum down payments in Canada are as follows: To purchase an owner-occupied home: 5% To purchase and avoid paying mortgage default insurance: 20% (...)
- Effective RateAn effective interest rate is a rate that takes into account any cash rebates paid to the borrower. For example, if the contract rate is 3.00% on a $200,000 five-year mortgage amortized over 25 years, and the borrower is getting $1,000 cash back, the effective rate will be lower than 3.00%(...)
- EquityThe net value that an owner has in a property. It is the difference between the price that a home could be sold for and the amount still owing on any mortgages.
- Fixed Rate MortgageAs its name implies, a fixed rate mortgage is a mortgage loan with a fixed rate of interest and equal payments for the entire term of the mortgage. Fixed rate mortgages, during the term of the mortgage, are unaffected by changes to Canada’s prime rate.
- ForeclosureForeclosure is the process in which a bank or lender takes back possession of a property. This often occurs after the homeowner has defaulted on his or her mortgage loan by failing to keep up with the agreed upon payment schedule. A foreclosed home is then typically sold by the lender to(...)
- Gross Debt Service (GDS) ratioThe percentage of the borrower’s income needed to cover all housing costs (specifically, mortgage payments, property taxes, heat and ½ of any condo fees). The traditional limit for an acceptable GDS ratio has long been 32%. But most lenders allow up to 39%, especially if the mortgage is(...)
- GuarantorA guarantor is someone who legally agrees to take on mortgage payments in the event that the borrower defaults. Guarantors can be required if the applicant or applicants have sufficient income for the mortgage approval, but insufficient credit strength. A guarantor is unlike a(...)
- Hawk (Hawkish)A hawk is someone who has relatively high inflation expectations and favours higher interest rates in order to lower future inflation to an acceptable level. See also: Dove (Dovish)
- High-Ratio MortgageA high-ratio mortgage is one with a loan-to-value of 80% or more, which is to say one with a down payment of less than 20%. Most high-ratio mortgage are required by law to have mortgage default insurance, which is provided by either CMHC, Canada Guaranty or Genworth. The borrower pays a(...)
- Home EquityThis is the total value of a home, less any mortgage(s) owing. Home equity can be calculated by taking the market value of the property and subtracting the remaining mortgage balance. Home equity is built up over time as the property value increases and as the property’s mortgage balance decreases.
- Home Equity Line of Credit (HELOC)
- Hybrid MortgageA hybrid mortgage is designed to diversify a borrower's rate risk. It has: both a fixed and variable portion (e.g. 60% fixed rate and 40% variable rate) and/or a long term and a short term (e.g., a 5-year fixed and a 1-year fixed). A hybrid enables you to enjoy the stability of(...)
- InsurableAn "insurable" mortgage is one that has 20% equity or more and meets all other default insurance requirements. Unlike regular default insurance (a.k.a. "high ratio insurance" and "transactional insurance") the insurance in this case is paid for by the lender. The lender buys this insurance(...)
- Interest Rate Differential (IRD)The Interest Rate Differential is a compensation charge for the early termination of a mortgage prior to its maturity date. IRDs apply to fixed rate mortgages. The IRD is based on the difference between your rate and the rate the lender can lend at today, for a term equivalent to your(...)
- Loan-to-Value Ratio (LTV)Loan-to-value refers to the amount of a mortgage loan in comparison to the value of the property that has been mortgaged. For example, if the property value is $500,000 and a down payment of $50,000 is made, the loan-to-value ratio is 90%. This figure determines what kind of mortgage you(...)
- Low-RatioA low-ratio mortgage, also known as a conventional mortgage, is one that does not exceed 80% the property’s appraised value. In other words, a low-ratio mortgage is one in which the borrower has at least 20% equity. By comparison, mortgages with less than a 20% down payment are called(...)
- Low-Ratio MortgageA low-ratio mortgage, also known as conventional mortgage, is a mortgage loan of up to 80% the property’s appraised value, meaning a down payment of 20% or more is required. Mortgage default insurance is not required by law for conventional mortgages. By comparison, mortgages with less than(...)
- Maturity DateThe maturity date refers to the last day of a mortgage term. The mortgage must either be repaid in full, renewed or refinanced at that time.
- Monoline LenderThis term refers to a company whose business is strictly mortgage lending, and hence has no other product offerings that it can cross-sell to customers.
- Mortgage Assignment (Switch)A mortgage assignment refers to the transfer of mortgage ownership from one lender to another. This happens when the mortgage holder wants to “switch” his or her mortgage to a new lender. In a mortgage assignment, the key terms of a mortgage, such as the amount, amortization period and(...)
- Mortgage Debt Ratios
- Mortgage DefaultTo default on a mortgage means the borrower has failed to meet the contractual requirements of the loan, most typically by missing a mortgage payment. At this point, the lender can pursue steps to take possession of the property, generally through a foreclosure or power of sale process.
- Mortgage InsuranceAlso known as mortgage default insurance, this is a form of protection for lenders (and that lender’s investors) in the event that a borrower defaults on his or her payments. For homebuyers with a down payment of less than 20%, insurance is generally required by law. Default insurance is(...)
- Mortgage PrepaymentA mortgage prepayment is an extra payment made in addition to your regular mortgage payments. It is applied directly to the principal balance of the loan. Prepayments are optional and can be in the form of lump sums or ongoing payment increases.
- Mortgage RefinanceRefinancing a mortgage involves replacing the existing loan with a new loan. Refinances are usually required if you wish to increase your mortgage amount or amortization length. Refinances are also generally required if you wish to move from one lender to another and have a “collateral charge”(...)
- Mortgage RenewalA mortgage renewal is an agreement between a borrower and the lender to extend the mortgage to a new term at a new interest rate. Mortgages can renew at the maturity date, or can be early renewed. Spy Tip: Never accept your lender’s first renewal offer, and possibly not even its second(...)
- MortgagorMortgagor is another term for a mortgage borrower.
- Negative AmortizationRefers to a case where your mortgage payment is not enough to cover the interest due. The interest then builds up and your principal increases instead of shrinking. In rare cases, negative amortization can occur if you have a fixed-payment variable-rate mortgage and prime rate jumps considerably.
- Negative EquityAlso referred to as being “underwater,” having negative equity means your mortgage balance is greater than the value of your house. The risk of this is higher for those who make smaller down payments, such as 5%. In that case, it only takes a small depreciation in home value for the equity(...)
- Notice of Assessment (NOA)A Notice of Assessment (NOA) is a detailed tax statement sent annually by the Canada Revenue Agency. It includes information about an individual’s taxable income information for the current year, taxes owed, taxes paid, tax refund amount and RRSP contribution room. Lenders commonly request the(...)
- O.A.C.The acronym for “on approved credit.” This is a typical disclaimer on advertised mortgage rates.
- Open MortgageIn contrast to a closed mortgage, an open mortgage can be repaid or refinanced at any point during its term without penalty. Borrowers pay for the flexibility of an open mortgage with a higher rate. Spy Tip: At today’s rates, open mortgages generally don’t make sense if you plan to hold a(...)
- OSFIOSFI stands for "The Office of the Superintendent of Financial Institutions." It is Canada's banking regulator. Note: OSFI regulates federal banks, trusts and insurance companies. Credit unions are provincially regulated, however, and therefore not directly regulated by OSFI. Mortgage(...)
- Overnight Index Swap (OIS)An Overnight Index Swap (OIS) is an interest rate derivative in which two parties agree to exchange (swap) a specific fixed interest rate obligation for a floating rate obligation linked to the overnight rate. This instrument is popular amongst financial institutions as a way to hedge risk,(...)
- Percentage Point (pp)A percentage point is a unit of one percent. For example, a change from 30% to 35% is an increase of five percentage points. See also: Basis points
- Portable MortgageA Portable Mortgage allows the borrower to transfer the mortgage balance, terms and interest rate to a new property without penalty. When a mortgage is ported it remains with the same lender. Lenders typically give borrowers anywhere from 1 day to 120 days to port their mortgage. Spy Tip:(...)
- Posted RateA lender's advertised mortgage rate, typically an undiscounted rate. Posted rates are used mainly for: penalty calculations cashback mortgage calculations determining rate reductions for borrowers who are already approved, in the case where rates are falling.
- Pre-ApprovalAs the term implies, a pre-approval is an initial evaluation of a homebuyer’s borrowing qualifications. This is used to determine whether someone might get approved, as well as the maximum amount they might be approved for. Spy Tip: A pre-approved mortgage is always subject to lender(...)
- Prime Mortgages (“A” Mortgages)Prime mortgages, also known as “A” mortgages, are considered the highest quality and the lowest risk due to the strong credit standing of the borrower. See also: Subprime mortgage
- Prime RateHistorically prime rate has referred to the interest rate banks charged their most credit-worthy customers or corporations. That is not always the case today. Today it is generally a reference rate upon which other rates are quoted. For example, fluctuating variable rates and lines of(...)
- PrincipalPrincipal refers to the amount of money that was borrowed, or that still remains on the loan. Mortgage payments are split into two portions. One part of the payment goes towards interest charges, and the remaining portion goes towards paying down the principal balance of the loan.
- Qualifying Rate
- Quantitative EasingQuantitative easing occurs when a central bank purchases securities (like government bonds) in the open market in order to lower interest rates and stimulate the economy.
- Quick CloseA quick close mortgage is one that closes in a short period of time, typically 30-45 days. Quick closings often come with lower rates because the lender doesn’t have to hedge its rate guarantee as long.
- Readvanceable MortgageA readvanceable mortgage has a built-in line of credit that lets you re-borrow off the line of credit after you pay down the mortgage portion. Readvanceable mortgages provide homeowners with a low cost source of borrowing for renovations, investing, business use and emergencies, among other(...)
- Reverse MortgageA reverse mortgage is a mortgage product for seniors that allows them to withdraw up to half the equity from their home in tax-free payments, typically for the purpose of supplementing retirement income. Other reasons for using a reverse mortgage include home renovations, debt repayment,(...)
- SecuritizationSecuritization refers to the process of bundling multiple mortgages into packages (pools) and selling those pools to investors. Selling their mortgage assets like this allows lenders to raise new capital, which in turn can be lent out to new borrowers.
- Smith ManoeuvreThe Smith Manoeuvre is a leveraged investing technique whereby you: Get a HELOC that's linked to your mortgage (a.k.a. A "readvanceable mortgage" where the available HELOC credit increases as you pay down your mortgage portion.) Use that freed-up HELOC room to reborrow the principal(...)
- SpreadA spread is the difference between two interest rates. From a lender’s perspective, the most important “spread” is the difference between the mortgage rate they offer consumers, and their cost for those funds. Other spreads include: The fixed - variable rate spread The 5-year(...)
- Subprime Mortgage (“B” Mortgage)A subprime or “B” mortgage refers to a mortgage loan made to a less creditworthy borrower. This can be someone with a low credit score, high debt ratios or insufficient proof of income. To account for the greater risk, lenders charge a premium on the interest rate and carefully scrutinize the(...)
- Target RateThe overnight target rate is also known as the Bank of Canada’s “key interest rate” or “key policy rate.” It is a foundational interest rate that influences virtually all other rates in Canada. The Bank of Canada has eight fixed dates throughout the year on which it determines whether to(...)
- Teaser RateA teaser rate is a below-market rate for a limited introductory period, after which time the rate increases to a higher level. A teaser rate is used by mortgage providers as a way to entice new customers.
- TermTerm refers to length of the mortgage contract. It is the amount of time (generally measured in years) that the conditions of the loan remain in effect. At the end of the term, the mortgage balance either needs to be repaid in full, renewed for another term, or refinanced. Term and(...)
- Tied SellingCoercive tied selling is when a lender makes you believe your mortgage will not get approved unless you agree to buy other products and services from that lender. This is illegal under Section 459.1 of Canada's Bank Act. This is not to be confused with "Preferential Pricing," which is when(...)
- Total Debt Service (TDS) ratioThe percentage of the borrower’s income needed to cover all housing costs (mortgage payments, property taxes, heat and half of any condo fees), plus the cost of servicing other debts (car payments, credit card interest, lines of credit, loans, etc.). Traditionally, the maximum allowable TDS(...)
- Trigger RateA trigger rate is the rate, that if surpassed, requires a variable-rate borrower to increase her payment. Trigger rates are linked to prime rate. They ensure that variable-rate borrowers with fixed payments always cover at least the interest due to a lender is fast rising rate(...)
- Type-A Cottage
- UninsuredThis refers to a mortgage that does not have default insurance. Default insurance is required for any normal mortgage with less than 20% equity.
- Variable Rate Mortgage (VRM)This is a mortgage with an interest rate that is not fixed. Its rate typically changes when its benchmark (usually prime rate) changes. A VRM is often referred to as an adjustable rate mortgage (ARM). In reality, there is a slight difference. A VRM has a fixed payment while an ARM has a(...)
- Y/Y (YOY)Short for “year over year,” it is used to compare data from the same period a year earlier.