Understand the Jargon
Here are some brief definitions of common mortgage words and expressions to guide you through your mortgage experience. If you need more help, a London Life mortgage planning specialist can provide a more complete explanation.
Amortization period – The number of years it will take to repay your mortgage in full. A short amortization period results in higher payments, but saves you interest over the life of your mortgage.
Assumability* – If you sell your home, the purchaser can take over your mortgage. This may make your home easier to sell, particularly if you have a low interest rate.
Conventional mortgage – A loan of up to 80% of the appraised value or purchase price of your home, whichever is less
Debt service ratios – The gross debt service (GDS) ratio is used to determine the maximum loan amount for which you qualify. Your debt payments cannot be more than 32% of your gross (before tax) income. This figure will cover principal and interest of the mortgage payment, property taxes, heat and 50% of condo fees, if applicable.
The total debt service (TDS) ratio takes other debts into account such as car payments, personal loans or credit card balances. Your debt, with monthly expenses, cannot be more than 40% of your before-tax income.
High-ratio mortgage – A loan of up to 95% of the appraised value or purchase price of your home, whichever is less.
Interest rate protection – Interest rate protection means your interest rate is protected for 90 days or until closing, whichever comes first.
Maturity date – The date at which your mortgage term ends—at that time, you can renew at current rates or pay the remainder of your mortgage without penalty.
Mortgage life insurance – Life insurance that, depending on the type, either pays off your mortgage or provides proceeds to your beneficiary or your estate which may be used to pay off your mortgage.
Mortgage loan insurance – When a lender uses the term mortgage insurance, it means coverage provided by companies such as Canada Mortgage and Housing Corporation (CMHC) or Genworth Financial Canada. Although you pay for this insurance, it protects the lender.
Portability* – If you buy another home, you can take your mortgage with you to finance your next property.
Pre-approved mortgage* – The maximum mortgage amount you can afford before you start shopping for a home. A pre-approved mortgage guarantees your interest rate for 90 days, so you have time to shop for the home that's just right.
Prepayment privileges* – Allows you to use extra money to pay off your mortgage faster.
- Accelerated payments: increase your regular principal and interest payments by up to 15%
- Lump-sum payments: Annual lump-sum payments up to 15% of your original mortgage principal, once a year
- Double-up payments: Pay twice your regular mortgage payment on any payment date: this surplus is applied directly against the principal balance of your mortgage and saves interest costs
Term – The length of time the interest rate is fixed:
- Open term: Allows you to pay off all or part of your mortgage at any time, without penalty. Open-term mortgages tend to be for short terms such as 6 months or 1 year
- Closed term: A mortgage term with a fixed payment schedule and prepayment privileges. A penalty sometimes applies if you repay your mortgage before the end of the term
- Convertible term: A special closed-term mortgage, that allows you to convert to a longer term, closed mortgage at any time without penalty
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