Lending FAQ Terminology Amortization The total number of years it will take to pay off a mortgage. The current maximum amortization period is 25 years. Term The length of time your mortgage agreement is valid, generally between 1 and 5 years. After this term, your lender will provide you with the options available for renewal, for you to choose a new term and interest rate. Principal The amount initially borrowed for your home purchase. This balance will go down as you make regular mortgage payments. Payment Frequency How often you make your payments. Monthly, semi-monthly (twice per month), bi-weekly (every 2 weeks) or weekly (every 1 week). Stress Test When qualifying a borrower for a new mortgage payment, the Bank of Canada’s 5 year fixed mortgage rate is used in calculations. This ensures that if interest rates increase in the future, you should still be able to afford your mortgage payments. Variable Rate Mortgage The interest rate on your mortgage is based on the prime lending rate, and will change as the prime rate changes. Fixed Rate Mortgage The interest rate on a mortgage is set for the term of the mortgage. This bring peace of mind knowing exactly how much is owed at the end of each mortgage term Prime Lending Rate A reference or base rate set by each financial institution used to set the price or interest rate of lending products. Mortgage Loan Insurance Mandatory product on all high-ratio mortgages (less than 20% down payment). This premium can be added your mortgage. Mortgage Life Insurance Insurance to cover the borrowers in case of loss of life. If a borrower with mortgage life insurance passes away, the mortgage is paid in full. Other coverages available include disability, critical illness and loss of employment. Total Debt Service Ratio (TDS) All debt obligations (homeownership costs, loan, credit card and line of credit payments) relative to your gross household income. Gross Debt Service Ratio (GDS) Homeownership costs (mortgage, property taxes, utilities) relative to your gross household income. High-Ratio Mortgage A mortgage in which the homebuyer makes a down payment of less than 20% of the purchase price. All high-ratio mortgage must be covered by mortgage loan insurance. Low-Ratio Mortgage Also known as conventional mortgage, a mortgage in which the homebuyer makes a down payment of 20% or more of the purchase price. No mortgage loan insurance is required for this type of mortgage.