Canadian Mortgage Glossary

Definition: Major banks (RBC, TD, BMO, Scotia, CIBC) and monolines (MCAP, First National, RMG). Best rates but strictest qualification requirements.

Target: 680+ credit, 39% GDS, 44% TDS

Example: RBC requires 720 Beacon score and full income verification for best rates.

Definition: Total time to pay off the mortgage in full. Longer amortization = lower monthly payments but more interest paid.

Target: Max 25 years (insured), 30 years (uninsured)

Example: 25-year amortization on $500,000 at 5% = $2,908/month vs 30-year = $2,684/month.

Definition: A mortgage that can be transferred from seller to buyer, with the buyer taking over the existing rate and terms. Rare but valuable when existing rate is below current market rates.

Example: Seller has $350K mortgage at 2.1% (2021). Buyer assumes it, saving vs current 5.5% rates. Lender approval required.

Definition: Alternative lenders for borrowers who don't qualify with A-lenders. Accept lower credit scores, self-employed stated income, and higher debt ratios.

Target: 550-679 credit, higher rates (1-3% premium)

Example: Equitable Bank, MCAN, Home Trust accept self-employed with 2 years business history.

Definition: Canadian credit score system (300-900 scale). Higher scores qualify for better rates and lenders.

Target: 680+ for A-lenders, 550-679 for B-lenders

Example: 720 Beacon score qualifies for prime rates and 85% LTV.

Definition: Lender representative who supports mortgage brokers. The BDM is the broker's direct contact at each lender for deal submissions, exceptions, and rate holds. BIPS includes a BDM directory.

Example: Broker submits unusual self-employed deal. BDM at Home Trust reviews manually and approves with conditions.

Definition: Short-term loan (1-6 months) used when a buyer closes on a new property before selling their existing one. Covers the down payment gap between purchase and sale.

Example: New home closes June 1, existing home sells July 15. Bridge loan covers $200K down payment for 45 days.

Definition: Federal mortgage underwriting guideline requiring federally-regulated lenders to: apply the stress test, cap HELOC at 65% LTV, verify income documentation, and maintain sound LTV limits.

Example: Credit unions are provincially regulated and not bound by B-20, but many follow similar standards voluntarily.

Definition: Mandatory mortgage default insurance required when down payment is less than 20% (LTV > 80%). Enables up to 95% LTV financing.

Target: Premium: 2.80% to 4.50% of mortgage amount

Example: A 90% LTV mortgage requires a 3.10% CMHC premium, added to the mortgage balance.

Definition: Adding a new mortgage position on top of existing mortgages to pay off high-interest debt. Keeps first mortgage in place.

Example: Keep $400,000 first mortgage, add $100,000 second mortgage to pay off $95,000 credit card debt.

Definition: A mortgage with restrictions on extra payments and early payoff. Lower rates than open mortgages. Prepayment privileges (e.g., 10-20% lump sum annually) are written into the contract.

Example: Most Canadian mortgages are closed with 15-20% annual prepayment privilege, allowing lump-sum payments each year.

Definition: A mortgage registered as a collateral charge rather than a standard charge. Can be registered for more than the mortgage amount (up to 125% of value). Cannot be transferred to another lender without refinancing — requires discharge and re-registration.

Example: TD and CIBC register all mortgages as collateral charges. Cannot "switch" to First National at renewal — must pay discharge fees and legal costs.

Definition: An uninsured mortgage where the borrower has at least 20% down payment (LTV ≤ 80%). No CMHC insurance required. Maximum 30-year amortization.

Target: LTV ≤ 80%, down payment ≥ 20%

Example: $800,000 home with $160,000 down (20%) = $640,000 mortgage = 80% LTV = conventional.

Definition: Upfront cash payment toward property purchase. Determines LTV and whether CMHC insurance is required.

Target: 5% min (insured), 20% min (uninsured), 35% min (rental)

Example: $650,000 purchase with 20% down = $130,000 down, $520,000 mortgage.

Definition: Used for rental/investment properties. Measures whether rental income covers the mortgage payment. A DSCR ≥ 1.0 means the property is cash-flow positive.

Formula: DSCR = Net Rental Income ÷ Annual Mortgage Payment (P&I)

Target: DSCR ≥ 1.0 preferred; some lenders require ≥ 1.1 or ≥ 1.2

Example: Rental income $3,600/month ($43,200/yr), mortgage payment $3,000/month ($36,000/yr): DSCR = 43,200 / 36,000 = 1.2.

Definition: Refinancing to access home equity by paying off existing mortgages and taking a larger new mortgage.

Target: Max 80% LTV

Example: Property worth $800,000, existing mortgage $400,000 → new $640,000 mortgage = $240,000 cash out.

Definition: Mortgage rate locked for the entire term, unaffected by Bank of Canada rate changes. Provides payment certainty but higher break penalty (IRD) if broken early.

Example: 5-year fixed at 5.29% means the same rate and payment for all 60 months regardless of BoC decisions.

Definition: Tax-advantaged account for first-time homebuyers (launched 2023). Contributions are tax-deductible; withdrawals for a first home are tax-free. Combines RRSP and TFSA benefits.

Target: $8,000/year contribution limit; $40,000 lifetime maximum

Example: Contribute $8,000/year for 5 years = $40,000 (plus growth). Withdraw tax-free for first home purchase.

Definition: Monthly housing costs divided by gross monthly income. Includes mortgage payment, property tax, heating, and 50% of condo fees.

Formula: (Mortgage Payment + Property Tax + Heating + 50% Condo Fees) ÷ Gross Monthly Income

Target: ≤ 39%

Example: If housing costs are $2,000/month and income is $6,000/month, GDS = 33%.

Definition: Revolving credit line secured by property equity. Interest-only payments, access funds as needed.

Target: Max 65% LTV

Example: $100,000 HELOC at prime + 0.5%, pay interest only on amount used.

Definition: CRA program allowing first-time buyers to withdraw up to $35,000 per person ($70,000 per couple) from their RRSP tax-free to use as a down payment. Must be repaid over 15 years.

Target: Max $35,000 per person; repay 1/15 per year for 15 years

Example: Couple withdraws $35K each ($70K total) for down payment. Repay $4,667/year each for 15 years.

Definition: A prepayment penalty charged by lenders when breaking a fixed-rate mortgage before maturity. Calculated as the difference between your contract rate and the lender's current posted rate for the remaining term.

Formula: IRD = Outstanding Balance × (Contract Rate − Current Posted Rate for Remaining Term) × Remaining Months / 12

Example: $500,000 mortgage at 5.5%, 3 years remaining, current 3yr posted rate 4.0%: IRD = $500,000 × 1.5% × 3 = $22,500.

Definition: A mortgage with less than 20% down payment (LTV > 80%) that requires CMHC default insurance. Enables higher LTV financing and often carries lower interest rates than conventional mortgages.

Target: LTV 80.01%–95%, owner-occupied, purchase price ≤ $1.5M

Example: $600,000 home with $30,000 down (5%) = $570,000 mortgage = 95% LTV = insured.

Definition: Total mortgage debt divided by property value. Determines if CMHC insurance is required and which lenders qualify.

Formula: Total Mortgage Amount ÷ Property Value

Target: Max 95% (insured), 80% (uninsured), 65% (HELOC)

Example: A $400,000 mortgage on a $500,000 property = 80% LTV.

Definition: Upfront fee charged by B-lenders and private lenders on mortgage approval. Typically 0.5-2% of the mortgage amount for B-lenders, 1-3% for private lenders. Added to closing costs.

Target: B-lenders: 0.5-2%; Private lenders: 1-3% of mortgage amount

Example: $400,000 B-lender mortgage with 1% lender fee = $4,000 due at closing.

Definition: A lender that offers only mortgages — no chequing accounts, credit cards, or other banking products. Typically offer lowest fixed rates and most borrower-friendly prepayment penalties (3 months interest only, not IRD).

Example: MCAP, First National, RMG: offer 5yr fixed at 4.89% vs Big Bank posted rate of 6.49% with 3-month interest break penalty.

Definition: CRA document confirming a filed tax return has been processed. Shows declared income and any taxes owed or refunded. Required by A-lenders to verify self-employed income.

Example: A-lender requires 2 most recent NOAs to confirm stated income matches tax filings.

Definition: Property used as primary residence. Best rates and most lenient qualification requirements. Required for CMHC insurance.

Example: Living in the property full-time as your main home.

Definition: A mortgage that can be paid off at any time without prepayment penalty. Rates are higher than closed mortgages. Used when the borrower expects to sell or refinance soon.

Target: Rate premium: 0.75–2.00% above closed mortgage rates

Example: Seller waiting for property sale uses an open mortgage to avoid penalty when proceeds arrive.

Definition: Federal regulator overseeing Canadian banks, insurance companies, and trust companies. Sets mortgage underwriting rules including Guideline B-20 (stress test, LTV limits, income verification).

Example: OSFI Guideline B-20 requires all federally-regulated lenders to stress-test borrowers at max(rate+2%, 5.25%).

Definition: Short-term (6-12 months) high-rate loans for difficult scenarios. No credit score or income requirements.

Target: Rates: 8-15%+, 1-3 points lender fee

Example: Bridge financing during credit repair or construction projects.

Definition: Buying a property with a new mortgage. Can be owner-occupied, rental, or investment property.

Target: 5% down (insured), 20% down (uninsured), 35% down (rental)

Example: First-time buyer purchasing $650,000 home with 5% down requires CMHC insurance.

Definition: The benchmark interest rate set by major Canadian banks, typically 2.20% above the Bank of Canada overnight target rate. Variable-rate mortgages are priced as Prime +/- a spread.

Formula: Prime Rate = Bank of Canada Policy Rate + 2.20%

Example: If Bank of Canada rate is 3.00%, Prime Rate = 5.20%. A variable mortgage at Prime - 0.90% = 4.30%.

Definition: Fee charged by lenders for paying off a mortgage before the end of its term. For variable-rate mortgages, typically 3 months interest. For fixed-rate, the greater of 3 months interest or IRD.

Example: Breaking a $400,000 fixed mortgage mid-term: 3-month interest = $5,500; IRD = $18,000. Penalty = $18,000 (higher of the two).

Definition: Transferring an existing mortgage (rate, remaining balance, and conditions) to a new property when moving. Avoids prepayment penalty. Subject to lender approval and re-qualification.

Example: Moving from $600K home to $800K home: port $400K existing mortgage at 2.5% rate, top up $200K at current rate.

Definition: How often mortgage payments are made. Accelerated bi-weekly and accelerated weekly options result in one extra monthly payment per year, reducing amortization by 2-3 years.

Target: Options: Monthly, Semi-Monthly, Bi-Weekly, Accelerated Bi-Weekly, Weekly, Accelerated Weekly

Example: Accelerated bi-weekly: Monthly payment ÷ 2, paid every 2 weeks = 26 payments/year vs 24 for regular bi-weekly.

Definition: Replacing an existing mortgage with a new one (same lender or different lender) before maturity. Incurs prepayment penalty.

Target: Max 80% LTV

Example: Refinancing to access equity for renovations or debt consolidation.

Definition: Investment property generating rental income. Requires 20-35% down, higher rates than owner-occupied.

Target: DSCR (Debt Service Coverage Ratio) ≥ 1.0

Example: Property rents for $3,000/month, mortgage payment $2,400/month = DSCR 1.25.

Definition: Renegotiating a mortgage at the end of its term. Borrowers can change lenders, rates, and terms without penalty. No re-qualification required if staying with same lender (for most products).

Example: 2025-2026 renewal wave: ~2.2M Canadians renewing mortgages taken at 2020-2021 pandemic-era low rates, facing significantly higher payments.

Definition: The portion of rental income a lender will apply to reduce the subject property's housing costs in GDS/TDS calculations. Typically 50-80% of gross rental income. Improves qualifying ratios for investment properties.

Formula: Offset = Gross Rental Income × Offset % (e.g., 50-80%)

Example: Property rents for $2,400/month. Lender uses 50% offset = $1,200/month reduces GDS/TDS.

Definition: A lender's commitment to honour a quoted rate for a set period (typically 90-120 days) while the borrower arranges financing. Protects against rate increases during purchase negotiations.

Target: Typical hold: 90-120 days from rate sheet date

Example: Broker submits deal on May 1 with 120-day rate hold. Buyer closes August 29 — within the rate hold window.

Definition: Document published by lenders listing current mortgage rates, terms, and product features. Updated weekly or as rates change. BIPS processes rate sheets automatically to keep lender data current.

Example: First National's rate sheet shows 5yr fixed at 4.89%, 3yr fixed at 4.69%, variable at Prime - 0.85%.

Definition: Borrowers must qualify at a higher interest rate to ensure affordability if rates rise. Calculated as the maximum of contract rate + 2% or 5.25%.

Formula: Qualifying Rate = max(Contract Rate + 2%, 5.25%)

Example: A 4.5% contract rate requires qualification at 6.5%.

Definition: Canadian mortgages compound interest twice per year (every 6 months), not monthly like US mortgages. This affects payment calculations.

Formula: Effective Monthly Rate = (1 + Annual Rate/2)^(2/12) - 1

Example: A 5% annual rate becomes 4.949% effective annual rate for monthly payments.

Definition: Income declared by the borrower without full CRA documentation. Accepted by B-lenders for self-employed borrowers with 2+ years of business history. Higher rates apply.

Example: Contractor earns $150K/yr but claims $60K after expenses. B-lender accepts $120K stated income (80% of gross revenue) with 2yr business registration.

Definition: All monthly debt payments divided by gross monthly income. Includes housing costs plus credit cards, car loans, lines of credit, and other debts.

Formula: (Housing Costs + All Other Debts) ÷ Gross Monthly Income

Target: ≤ 44%

Example: If total debts are $2,500/month and income is $6,000/month, TDS = 42%.

Definition: Moving a mortgage to a new lender at maturity without penalty. Used for rate shopping at renewal.

Example: Switching from RBC to First National at renewal for better rate.

Definition: The length of time the current mortgage contract (interest rate, conditions) is in effect. At term end, the mortgage renews. Different from amortization.

Target: Common terms: 1, 2, 3, 5 years. Maximum 10 years.

Example: 5-year term on a 25-year amortization: same rate for 5 years, then renew at market rates for next term.

Definition: Mortgage rate that fluctuates with the Prime Rate. When Bank of Canada raises or lowers rates, the variable rate changes. Payment may be fixed (balance changes) or adjustable (payment changes).

Example: Prime - 0.90% = 4.30% today. If Bank of Canada cuts 0.25%, new rate = 4.05%, saving ~$65/month on $500,000.