Mortgage terms like APR, LTV, amortization, GDS/TDS and IRD decide how much you can borrow, what you’ll pay and what happens if you break your mortgage. Neha Joneja, a Mortgage Agent Level 2 in Brampton, translates the most common mortgage lingo into plain English so you can compare offers with confidence.
Mortgage paperwork is written for lenders and lawyers, not for the people signing it. When a commitment letter arrives full of terms like LTV, IRD and “conditions outstanding”, it’s easy to nod along. Here’s what the most common terms actually mean, grouped by when you’ll run into them.
Key takeaways
- Amortization is the full payoff timeline; the term is how long your current contract lasts.
- Lenders size your mortgage using LTV, GDS/TDS and the stress test, not just your income.
- Penalties, prepayment privileges and portability can matter as much as the rate.
- B lenders and private lenders are real options when a bank says no, at a higher cost.
What do the cost words on a mortgage offer mean?
APR (annual percentage rate)
The APR is the yearly cost of borrowing expressed as a percentage, including the interest rate plus certain borrowing costs, such as lender fees. On a typical bank mortgage with no extra fees, the APR and the interest rate are close or identical. When a lender or private fee is involved, the APR will be higher, which makes it a useful way to compare offers on equal footing.
Prime rate
Prime is the base rate each lender sets for its variable-rate products and lines of credit. It generally moves when the Bank of Canada changes its policy rate. Variable mortgages are usually quoted as prime plus or minus a set amount.
Fixed vs. variable rate
A fixed rate stays the same for your whole term, so your payment is predictable. A variable rate moves with the lender’s prime rate, so your payment, or the share of it going to interest, can change. For a deeper comparison, read fixed vs. variable mortgage.
Default insurance
Mortgage default insurance, from CMHC, Sagen or Canada Guaranty, is required when your down payment is under 20%. It protects the lender, not you, if the mortgage isn’t repaid. The premium depends on your loan-to-value and is usually added to the mortgage, while Ontario’s 8% PST on the premium is paid at closing.
CMHC premium by loan-to-value
| Loan-to-value | Premium |
|---|---|
| Up to 65% | 0.60% |
| 65.01% to 75% | 1.70% |
| 75.01% to 80% | 2.40% |
| 80.01% to 85% | 2.80% |
| 85.01% to 90% | 3.10% |
| 90.01% to 95% | 4.00% |
Add 0.20% to the premium if the amortization is over 25 years.
How do lenders decide how much you can borrow?
LTV (loan-to-value)
LTV is your mortgage as a percentage of the home’s value. For example, a $560,000 mortgage on a $700,000 home is an 80% LTV. LTV affects your insurance premium, which products you qualify for and how much you can refinance: a conventional refinance is capped at 80% of the home’s value.
GDS and TDS
These are your debt service ratios. GDS (gross debt service) compares your housing costs, meaning mortgage payment, property tax, heating and half of any condo fees, to your gross income. TDS (total debt service) adds your other debts, such as car loans, credit card minimums and lines of credit. CMHC’s guideline for insured mortgages is up to 39% GDS and 44% TDS, though lenders vary. For example, a household earning $120,000 a year before tax could carry up to $3,900 a month in housing costs and $4,400 a month in total debt payments under those guidelines.
Stress test and minimum qualifying rate (MQR)
The stress test checks whether you could still afford your payments if rates were higher. You qualify at the minimum qualifying rate, which is the greater of your contract rate plus 2% or 5.25%. It applies to both insured and uninsured mortgages. A straight switch at renewal, with the same amount and amortization, generally doesn’t require re-qualifying at this rate.
Conditions
Conditions are the items a lender needs before it will fund your mortgage: an appraisal, a job letter, pay stubs, proof of down payment and so on. A “conditional approval” means the lender likes the file but still needs those items. In Ontario, keeping a financing condition in your purchase offer gives you time to satisfy them.
Rate hold
A rate hold reserves an interest rate for a set period while you shop for a home, usually as part of a mortgage pre-approval. The length and the exact rules vary by lender. A rate hold doesn’t mean you’re approved; it simply protects that rate while your file comes together, subject to the lender’s terms.
What’s the difference between amortization and term?
Amortization
Amortization is the total time it would take to pay off your mortgage completely, often 25 years. Insured mortgages can be amortized over 30 years for first-time buyers and buyers of newly built homes, and uninsured mortgages can generally go up to 30 years depending on the lender. A longer amortization lowers the payment but increases the total interest you pay.
Term
The term is the length of your current contract with the lender, commonly one to five years. When the term ends, you renew, renegotiate or switch lenders, even though the amortization still has years left.
What happens if you pay early, move or break your mortgage?
Open vs. closed mortgage
An open mortgage lets you pay off any amount at any time without a penalty, usually at a higher rate. A closed mortgage has a lower rate but limits extra payments and charges a penalty if broken early.
Prepayment privileges
These are the extra payments a closed mortgage allows each year without a penalty, such as a lump sum or a payment increase. Each lender sets its own limits, so compare them before you sign.
IRD (interest rate differential)
The IRD is a penalty some lenders charge when you break a fixed-rate mortgage early. It’s based on the difference between your rate and the rate the lender could charge today for the time left on your term. On fixed mortgages, the penalty is typically the greater of three months’ interest or the IRD; on variable mortgages, it’s typically three months’ interest. Each lender calculates it differently.
Portability
Portability lets you move your existing mortgage, rate and term to a new home when you sell and buy, instead of breaking it and paying a penalty. You’ll still need to qualify, and each lender sets its own rules.
Which lenders and products might you hear about?
HELOC (home equity line of credit)
A HELOC is a revolving line of credit secured by your home. You can borrow, repay and borrow again, paying interest only on what you use. Federally regulated lenders cap the revolving portion at 65% of your home’s value, and up to 80% when combined with a mortgage. Learn more on my HELOC page.
B lender
A B lender, or alternative lender, works with borrowers outside bank guidelines: self-employed people with lower declared income, bruised credit or higher debt ratios. Rates and fees are usually higher and terms often shorter, so the plan is usually to move back to an A lender once the file improves.
Private lender
Private lenders are individuals or companies that lend mainly on the equity in a property. They can move quickly when other lenders can’t, but they cost more, usually involve fees and are meant to be short-term, with a clear exit plan. As a Mortgage Agent Level 2, I can work with banks, B lenders and private lenders, and any fees are disclosed upfront.
Title insurance
Title insurance is a one-time policy, usually arranged by your real estate lawyer at closing, that protects against title problems such as fraud, survey issues or errors in public records. Many lenders require it, so budget for it in your closing costs.
Where should you start if you’re buying your first home?
For first-time buyers, the words that matter most early on are down payment, default insurance, amortization, GDS/TDS and pre-approval. My first-time home buyer mortgage page puts them in order. If it’s easier to talk it through in Hindi or Punjabi, see my page for a Punjabi and Hindi mortgage agent in Brampton, or book a consultation.
Approval subject to lender criteria (O.A.C.). Rates subject to change. Examples are for illustration only.
Frequently asked questions
What’s the difference between APR and interest rate?
The interest rate is what you pay to borrow the money. The APR includes the interest rate plus certain borrowing costs, such as lender fees, so it’s a better way to compare offers that have different fees.
Is a 25-year amortization the same as a 25-year mortgage?
Not exactly. The amortization is the full payoff timeline, but your contract, the term, is usually five years or less. You’ll renew or switch several times before the mortgage is paid off.