A to Z
The words, in plain English
Each entry is a line or two; bring the rest of your questions to the call.
- Amortization
- The number of years it would take to pay the mortgage down to zero at the current payments. Your term is a few years of that road; the amortization is the whole of it.
- Appraisal
- A licensed appraiser's opinion of what the property is worth, ordered from one of the lender's approved appraisers before it commits. On a build, the appraisal is of the finished house, not the lot.
- B lender
- A lender beyond the big banks, for people whose income or credit does not fit a bank's template. Rates and fees are usually higher, and every cost is disclosed in writing before you commit.
- Blanket mortgage
- One mortgage registered against more than one property at the same time. Lenders use it when the equity in one property helps carry another.
- Bridge loan
- A short loan that covers the gap when your new home closes before the sale of your old one does. It is paid off from the sale.
- Closing costs
- What you pay on top of the down payment to complete a purchase: legal fees, property transfer tax, title insurance, sometimes the appraisal, and adjustments for taxes or strata fees the seller has already paid.
- CMHC and default insurance
- Insurance the lender must carry when your down payment is less than 20 per cent of the price. You pay the premium, it is added to the mortgage, and it protects the lender, not you. CMHC is one of the insurers that provide it.
- Commitment letter
- The lender's written approval, with the conditions you must meet before it will advance the money. Read every line; it is the document the whole mortgage runs on.
- Conditions
- What a lender still needs before it funds: documents, an appraisal, proof of insurance, sometimes the sale of another property. We track each one and tell you when it clears.
- Construction draw
- One instalment of a construction loan, released when a stage of the build is finished and inspected. The loan pays out in draws, not as a lump sum.
- Conventional vs high-ratio
- A conventional mortgage has a down payment of 20 per cent or more and needs no default insurance. A high-ratio mortgage has less than that and must be insured.
- Co-signer vs guarantor
- Both put their name behind your mortgage. A co-signer is on the title and the mortgage with you; a guarantor promises to pay if you cannot, but owns no share of the property.
- Credit score
- A number a credit bureau works out from how you have handled debt so far. Lenders read it as a quick measure of risk; we pull it only with your written consent.
- Debt service ratios (GDS and TDS)
- The two percentages lenders use to decide how much you can carry. GDS, gross debt service, is your housing costs against your gross income; TDS, total debt service, adds every other debt payment.
- Deposit vs down payment
- The deposit is paid when your offer is accepted and sits in trust until closing. It becomes part of the down payment, which is everything you pay at closing that is not the mortgage.
- Draw schedule
- The lender's plan for when each construction draw is released, tied to stages such as foundation, lock-up and completion. It is built from your budget on the lender's template.
- DSCR
- Debt service coverage ratio: a property's net operating income divided by its yearly mortgage payments. On a commercial or rental building the lender wants the income to cover the payments with room to spare.
- Equity
- What the property is worth minus what you owe on it. It grows as you pay the mortgage down or as values rise, and a refinance can turn some of it into cash.
- Exit strategy
- How a short-term loan gets paid off: a sale, a refinance with a bank or the completion of a build. Private and construction lenders ask for it before they say yes.
- FHSA
- The First Home Savings Account, a registered account for saving toward a first home. Contributions reduce your taxable income, and a withdrawal for a qualifying first home is not taxed.
- Fixed vs variable
- A fixed rate stays the same for the whole term. A variable rate moves with the lender's prime rate, so your interest cost can change during the term.
- Gift letter
- A signed letter from a family member stating that money toward your down payment is a gift and does not have to be repaid. The lender wants it alongside proof the money arrived in your account.
- Holdback
- A share of each payment to the builder, held back for a set period after the work is done, as BC's builders lien law requires. It protects you if a trade or supplier was not paid.
- Home Buyers' Plan
- A federal program that lets a first-time buyer take money out of an RRSP for a down payment without paying tax on it, as long as it is paid back over the years that follow.
- Interest rate differential
- The usual way a lender works out the penalty for ending a fixed-rate mortgage early. It compares the interest it would have earned from you for the rest of the term with what it could earn lending the same money today, and charges you the gap.
- Interest reserve
- Part of a construction loan set aside to pay the interest while the house is being built, so you are not paying out of pocket each month before you can live in it or sell it.
- Loan-to-cost
- The construction loan as a share of the total cost of the project, land and build together. Lenders cap it, and you carry the rest.
- Loan-to-value
- The mortgage as a share of what the property is worth. The higher it is, the more the lender has at risk, and the tighter the rate and the rules.
- Lock-up
- The stage of a build when the shell is closed in: roof on, windows and exterior doors fitted, the house can be locked. It is one of the usual draw points.
- Maturity date
- The day your current term ends and the balance is due, which in practice is the day you renew, switch or pay it out. Our renewal heads-up comes twelve months before it.
- NOA
- Notice of Assessment, the summary the Canada Revenue Agency sends after it processes your tax return. Lenders use it to confirm your income and that no tax is owing.
- NOI
- Net operating income: what a building earns from rent after its operating costs and before the mortgage. Lenders size a commercial or rental mortgage on it.
- Open vs closed
- An open mortgage can be paid off at any time without a penalty, at a higher rate. A closed mortgage has a lower rate and a penalty for paying out more than the prepayment privileges allow.
- Penalty
- What a lender charges to end a closed mortgage before the term is up. On a variable mortgage it is usually three months of interest; on a fixed mortgage it is usually the higher of that and the interest rate differential.
- Porting
- Moving your existing mortgage, rate and term included, to a new property when you move. Not every mortgage can be ported, and the lender still has to approve the new property.
- Pre-approval vs pre-qualification
- A pre-qualification is an estimate from what you tell us. A pre-approval is a lender's answer based on your documents and credit, with a rate held while you shop.
- Prepayment privileges
- How much extra you can pay each year without a penalty: a lump sum, a bigger regular payment or both. The amounts differ by lender and are set out in the commitment letter.
- Prime rate
- The rate a lender publishes as its base for variable mortgages and lines of credit. It moves when the Bank of Canada changes its policy rate, and variable rates are quoted as prime plus or minus a margin.
- Property transfer tax
- The tax BC charges on most property purchases, paid by the buyer at closing. First-time buyers and buyers of newly built homes may qualify for an exemption, depending on the price.
- Rate hold
- A lender's promise to honour a quoted rate for a set number of days while you shop or wait to close.
- Refinance
- Replacing your mortgage with a new one, often for more than you owe, to take out equity, consolidate debt or change the terms. It usually means a new appraisal and, mid-term, a penalty.
- Reliance letter
- A letter from the appraiser, or another professional, allowing a lender to rely on a report that was ordered by someone else. It saves ordering the same report twice.
- Renewal
- What happens at the end of a term: the lender offers new terms for the balance you still owe. You can accept, negotiate or switch. Our heads-up comes twelve months before maturity, with options beside the bank's offer at four.
- Second mortgage
- A separate loan registered behind your first mortgage on the same property. If the property is sold it is paid out after the first, so its rate is higher.
- Stress test
- The rule that a lender must qualify you at a rate higher than the one you will actually pay, to show you could carry the payments if rates rose. It lowers what you can borrow, not what you pay.
- Subject removal
- The date in a purchase contract by which the buyer must confirm that conditions such as financing and inspection are met. After it, the deal is firm and the deposit is at risk.
- Term
- The length of your contract with the lender at the current rate and conditions, after which you renew. Terms are short; the amortization is long.
- Title insurance
- A one-time policy that protects the lender, and usually you, against problems with the property's title such as fraud, survey errors or unpaid charges. Most lenders require it.
- Trigger rate
- On a variable mortgage with fixed payments, the rate at which your payment covers only the interest and nothing comes off the balance. Past it, the lender asks for a higher payment or a lump sum.
- Underwriting
- The lender's assessment of your application: income, credit, the property and the ratios, against its own rules. An underwriter decides; we prepare the application so the decision is an easy one.
Construction and commercial
Terms specific to construction and commercial
The words that turn up once a build or a business is involved.
- ALR land
- Land in BC's Agricultural Land Reserve, where farming is protected and other uses are restricted. Fewer lenders will take it, and the ones that do want to know how the land is used.
- As-complete value
- The appraiser's opinion of what the finished building will be worth, as opposed to what the lot and a half-built house are worth today. Construction lenders lend against it.
- Builder's risk insurance
- Insurance on a building while it is under construction, covering fire, theft and weather damage before it can be insured as a home. Lenders require it before the first draw.
- Cost to complete
- What it will still cost to finish the build from where it stands today. Before each draw, the lender checks that the money left in the loan covers it.
- Hard costs and soft costs
- Hard costs are the physical build: materials, labour, site work. Soft costs are everything else: permits, design, legal, insurance and interest. The budget on the lender's template keeps them apart.
- Occupancy permit
- The municipality's sign-off that a new building is safe to live or work in. The final draw, and the switch from a construction loan to a regular mortgage, usually waits on it.
- Operating line vs term loan
- An operating line is credit a business draws on and repays as cash moves, with interest only on what is used. A term loan is a fixed amount repaid over a set period, for equipment, a buy-out or a property.
- Personal net worth statement
- A one-page list of what you own and what you owe, signed and dated. Every commercial application needs one; it is how the lender sees the person behind the company.
- Progress inspection
- A visit by the appraiser or a cost consultant before each draw to confirm how much of the build is done. The lender releases the draw on that report, not on the invoices.
- Rent roll
- A list of every unit in a building with its tenant, rent, lease dates and any arrears. On an investment property it is the first thing the lender reads, because the income on it sizes the mortgage.
- Spec build
- A house built to sell rather than to live in. Lenders treat it as a business, so they look at your experience, the loan-to-cost and the exit as well as the plans.
- Takeout financing
- The regular mortgage or long-term loan that pays off a construction or bridge loan when the project is finished. Lenders want to see how it will happen before they fund the build.
Hear a term on a call that is not here? Ask. The answer is usually one sentence, and the term goes on this page.