Glossary
Mortgage affordability glossary
Plain definitions of the terms Canadian lenders use when they decide how much you can borrow, from GDS and TDS to the minimum qualifying rate and mortgage default insurance.
- Amortization period
- The total time it would take to pay off the mortgage in full with regular payments, commonly 25 or 30 years. It is different from the term. 25 vs 30 years
- Mortgage term
- The length of your current contract with a lender (often 5 years). At the end of the term you renew, usually at a new rate, for the remaining amortization.
- Gross debt service (GDS) ratio
- Monthly housing costs (mortgage principal and interest at the qualifying rate, property tax, heating and half of any condo fees) divided by gross monthly income. GDS and TDS explained
- Total debt service (TDS) ratio
- GDS housing costs plus all other monthly debt payments (car loans, student loans, credit cards, lines of credit, support payments) divided by gross monthly income. GDS & TDS calculator
- Minimum qualifying rate (stress test)
- The interest rate a lender must use to test whether you can afford the payments: the higher of your contract rate plus a buffer, or a floor rate. It applies to insured and uninsured mortgages from federally regulated lenders. The stress test
- Contract rate
- The interest rate in your mortgage contract, the one your actual payments are based on.
- Insured (high-ratio) mortgage
- A mortgage with less than 20% down. The lender must buy mortgage default insurance from CMHC, Sagen or Canada Guaranty; the borrower pays the premium, usually added to the loan. Insured vs uninsured
- Uninsured (conventional) mortgage
- A mortgage with at least 20% down. No default insurance premium; lenders set their own limits within OSFI's guideline B-20.
- Loan-to-value (LTV)
- The mortgage amount divided by the property's purchase price (or appraised value, if lower). 95% LTV means a 5% down payment.
- Minimum down payment
- The least you must put down under federal rules: a percentage of the price that steps up in tiers, and 20% at or above the insured price cap. Down payment calculator
- Land transfer tax
- A provincial (and in Toronto and Montréal, municipal-rate) tax paid by the buyer when ownership transfers. Alberta and Saskatchewan charge land titles fees instead. Closing costs calculator
- Closing costs
- Cash you need on closing day on top of the down payment: land transfer tax, legal or notary fees, title insurance, any sales tax on the insurance premium, adjustments and moving costs.
- Mortgage pre-approval
- A lender's conditional statement of how much it would lend you, usually with a rate hold, after checking your credit and documents. It is not a final approval. Pre-approval vs affordability
- First Home Savings Account (FHSA)
- A registered account for first-time buyers: contributions are tax-deductible and qualifying withdrawals for a first home are tax-free. First-time buyer programs
- Home Buyers' Plan (HBP)
- A federal program that lets first-time buyers withdraw from their RRSPs to buy a home, then repay over 15 years.
- Heating cost
- The monthly cost to heat the home. Lenders include it in GDS; if you don't know it, many use a standard estimate.
- Condo fees
- Monthly fees paid to a condominium corporation. Lenders count 50% of them in GDS and TDS under CMHC's method.
- Semi-annual compounding
- Canadian fixed-rate mortgages state interest compounded twice a year, not monthly, as required by the Interest Act. It makes payments slightly lower than monthly compounding at the same rate.
- Accelerated bi-weekly payments
- Half your monthly payment every two weeks: 26 half-payments a year equal 13 monthly payments, so you pay the loan off sooner.
- OSFI
- The Office of the Superintendent of Financial Institutions, the federal regulator of banks and federally regulated lenders. Its guideline B-20 sets the uninsured stress test.
- CMHC
- Canada Mortgage and Housing Corporation, the federal Crown corporation that is the largest mortgage default insurer and publishes the premiums and debt-service limits used on this site.