Glossary
Bank mortgage glossary
The words in a big-bank mortgage offer, in plain English.
- Amortization
- The total time to repay the mortgage if payments stay the same, often 25 or 30 years. Different from the term.
- Blend-and-extend
- An early renewal in which the lender blends your current rate with the new term’s rate (FCAC).
- Closed mortgage
- A mortgage you cannot pay off early beyond the prepayment privileges without a penalty.
- Comparison rate
- The rate an IRD calculation compares with your rate. At the big banks, generally the posted rate for the remaining term minus your original discount.
- Discount
- How far below the posted rate your contract rate was set.
- GDS / TDS
- Gross and total debt service ratios: housing costs, then all debt payments, as a share of gross income. CMHC’s limits are 39% and 44%.
- HELOC
- Home equity line of credit: a revolving line secured on your home, up to 65% of its value (FCAC).
- Insured mortgage
- A mortgage with default insurance, required when the down payment is under 20%.
- IRD
- Interest rate differential: a penalty based on the gap between your rate and a comparison rate for the months remaining.
- Minimum qualifying rate (MQR)
- The stress-test rate: the greater of your contract rate + 2% or 5.25%.
- Monoline lender
- A lender that only does mortgages and sells through brokers rather than branches.
- Open mortgage
- A mortgage you can repay in full at any time without a penalty, usually at a higher rate.
- Portability
- Moving your existing mortgage, rate and term to a new home.
- Posted rate
- A bank’s published list rate for a term. Few borrowers pay it, but it is used in big-bank IRD penalties.
- Prepayment privilege
- How much extra you can pay each year on a closed mortgage without a penalty, as a lump sum or a payment increase.
- Prime rate
- The base rate each bank sets for variable-rate lending, which usually moves with the Bank of Canada’s policy rate.
- Readvanceable mortgage
- A mortgage combined with a HELOC so that principal you repay becomes available to borrow again, within the overall limit.
- Straight switch
- Moving a mortgage to a new lender at renewal without changing the amount or amortization. No longer needs a new stress test.
- Term
- How long your rate and conditions are fixed, commonly 1 to 10 years. At the end you renew.
- 3 months’ interest
- A penalty of balance × rate × 3/12; the usual penalty for closed variable mortgages.