Mortgage vocabulary

Making sense of the mortgage jargon.

There’s a whole vocabulary that comes with buying a new home. Mortgage jargon can be a little frustrating, but with the help of this cheat sheet you’ll pick it up in no time flat.

Amortization

This is the time it’ll take to completely pay off your mortgage. The maximum amortization period Affinity offers is 30 years.

Mortgage term

Within the amortization period, there are terms. They can vary from 6 months to 7 years. When you sign a mortgage, the term is the length of time the details of that agreement stay in effect – this includes terms and conditions, and interest rate. At the end of the term you can pay the mortgage off, renew it or renegotiate the details.

Mortgage payment schedule

This is how often you make mortgage payments. They can be made monthly, twice-monthly or even weekly depending on what you negotiate with your lender.

Prepayment penalty

If you pay your mortgage down ahead of schedule, then depending on the type of mortgage you have, you could be charged a prepayment penalty. Call our Contact Centre at 866.863.6237 to find out if there’ll be prepayment penalties applied on your mortgage.

Open-term mortgage

Looking to dodge prepayment penalties? An open-term mortgage lets you make extra mortgage payments whenever you want, without a penalty. The downside is that these mortgages generally come with a higher interest rate than closed-term mortgages.

Closed-term mortgage

It’s the opposite of an open-term mortgage. You get a lower interest rate but you have a set repayment schedule that you need to follow. Some closed-term mortgages will give you the chance to make extra payments under certain conditions. This’ll be detailed in your prepayment schedule.

Variable-rate mortgage

With a variable-rate mortgage, your interest rate follows the prime lending rate. If the prime rate goes up, so does the interest rate on your mortgage. If the prime rate goes down, your mortgage interest rate also goes down.

Prime rate

Prime rate, also called the prime lending rate, is a level of interest we (and other banks and credit unions) use as a basis when calculating the interest rates our members pay on loans. Each bank and credit union sets its own prime rate, but the rates are generally the same or very similar across all financial institutions and are based on the Bank of Canada rate.

Fixed-rate mortgage

With a fixed-rate mortgage, your interest rate and your payments stay the same for the full term of the mortgage. It doesn’t matter if the prime rate goes up or down, your mortgage holds steady.

Conventional mortgage

Your mortgage is conventional when you borrow no more than 80% of the total cost of your home. It’s when you have at least 20% as a down payment or as equity built up in your home.

High-ratio mortgage

This is the type of mortgage you get when you have less than 20% to put down on your new home. These mortgages are considered riskier than conventional ones so, if you go this way, you’ll need to get default insurance from the Canada Mortgage and Housing Corporation or Genworth Canada.

Mortgage stress test

With a stress test you need to qualify for your mortgage at a certain interest rate, even if you’ll end up paying a lower rate on your mortgage. Stress tests are mandatory on high-ratio mortgages but they’re commonly done for conventional mortgages as well. They show you can handle your mortgage payments even if interest rates were to increase.