Amortization Period

The total length of time to fully repay your mortgage. Common periods in Canada are 25 and 30 years. Longer amortization means lower monthly payments but more total interest paid.

Cap Rate (Capitalization Rate)

Net Operating Income divided by property value, expressed as a percentage. Measures a property's return independent of financing. Useful for comparing properties but does not account for your mortgage structure.

Cash-on-Cash Return

Annual pre-tax cash flow divided by total cash invested (down payment plus closing costs). Measures the actual cash yield on money you invested. Accounts for leverage unlike cap rate.

CMHC Insurance

Canada Mortgage and Housing Corporation mortgage default insurance. Required for mortgages with less than 20% down payment. Premiums range from 0.6% to 4.0% of the mortgage amount depending on your down payment percentage.

Debt Service Coverage Ratio (DSCR)

Net Operating Income divided by annual mortgage payments. Most Canadian lenders require a minimum of 1.25x for investment property financing. A DSCR below 1.0 means the property does not generate enough income to cover its mortgage payments.

Effective Annual Rate (EAR)

The actual annual interest rate after accounting for compounding. Under the Canadian Interest Act, mortgages compound semi-annually. The EAR derived from semi-annual compounding is used to calculate your payment at any frequency.

Gross Debt Service (GDS) Ratio

Total monthly housing costs (mortgage payment, property tax, heating, and 50% of condo fees) divided by gross monthly income. Most lenders require GDS of 35–39% or lower to qualify for a mortgage.

Gross Rent Multiplier (GRM)

Property purchase price divided by annual gross rental income. A quick screening metric: lower is generally better. Does not account for expenses or financing. Always follow up with cap rate and cash flow analysis.

Interest Act (Canada)

Federal legislation requiring that Canadian mortgage interest compound semi-annually, not monthly. This is why Canadian mortgages are not calibrated for Canadian mortgages when using US-based calculator assumptions.

Net Operating Income (NOI)

Gross rental income minus all operating expenses, excluding mortgage payments. Operating expenses include property tax, insurance, maintenance, and management fees. NOI is the starting point for cap rate and DSCR calculations.

OSFI

Office of the Superintendent of Financial Institutions. The federal regulator that sets mortgage underwriting guidelines for Canadian lenders under Guideline B-20, including the mortgage stress test.

Mortgage Stress Test

OSFI's requirement that borrowers qualify at the higher of their contract rate plus 2%, or 5.25% (the qualifying rate floor). Applies to most insured and uninsured mortgages at federally regulated lenders.

Mortgage Term

The length of your current mortgage contract, typically 1 to 5 years in Canada. At the end of each term, your mortgage renews at prevailing rates. Different from amortization period.

Semi-Annual Compounding

The Canadian standard for mortgage interest calculation under the Interest Act. Interest compounds twice per year, which produces lower effective rates than monthly compounding at the same stated rate.

Total Debt Service (TDS) Ratio

All monthly debt obligations (housing costs plus car loans, credit cards, and other debts) divided by gross monthly income. Most lenders require TDS of 42–44% or lower. Always paired with GDS in mortgage qualification.

Vacancy Rate

The percentage of time a rental unit is unoccupied. Industry standard assumption for analysis is 5% (about 2.5 weeks per year). Urban Ontario markets often see lower vacancy; rural markets may see higher.

Blend and Extend

A mortgage renewal option where your lender blends your current rate with the new rate and extends your term without triggering a penalty. Common when breaking a mortgage mid-term to access better rates.

IRD Penalty (Interest Rate Differential)

A mortgage prepayment penalty calculated as the difference between your current rate and the rate for a term matching your remaining term, multiplied by your balance and remaining months. Typically applies to fixed-rate mortgages broken before maturity.

Principal Residence Exemption

A Canadian tax exemption allowing homeowners to exclude capital gains on the sale of their primary residence from taxable income. Does not apply to investment or rental properties.

LTV (Loan-to-Value Ratio)

Mortgage amount divided by property value, expressed as a percentage. A lower LTV means more equity. CMHC insurance is required for LTVs above 80% (less than 20% down). Most lenders will not lend above 95% LTV.