Buy vs rent glossary

A

Amortization

The total number of years it would take to pay off a mortgage at the current payment schedule. Insured mortgages normally use 25 years, and 30 years is available to first-time buyers and buyers of newly built homes (confirm eligibility). A longer amortization lowers the payment but increases total interest. Learn more →

Appreciation

The increase in a home’s value over time, usually expressed as a percentage per year. It is uncertain, varies by city and period, and is an editable assumption in the calculator, not a forecast. Learn more →

Assessed value

The value a municipality assigns to a property for property tax purposes. It may differ from the price you pay or the market value. Learn more →

B

Bank of Canada inflation target

The Bank of Canada aims for 2% inflation, the midpoint of a 1% to 3% control range. The calculator uses 2% as its default inflation input. Learn more →

Break penalty

A charge for ending a mortgage before the end of its term. The calculator can model it as a set number of months of interest when a sale falls between renewals. See also prepayment penalty. Learn more →

Break-even

The first month from which buying stays ahead of renting after selling costs are counted. A crossing that later reverses does not count, and in some scenarios buying never catches up. Learn more →

Buy vs rent

The comparison of how much better or worse off a household would be after owning a home versus renting and investing the difference over the same period. Learn more →

C

Capital gain

The profit when an asset is sold for more than its cost. The gain on a home that qualifies as your principal residence is generally tax-free, but the sale must be reported. Learn more →

Closing costs

One-time costs paid when a purchase completes, usually legal fees, title insurance, an inspection, transfer taxes or registration fees, and adjustments. They vary by province and property. Learn more →

CMHC premium

The mortgage default insurance premium charged when the down payment is under 20%. It is 4.00% of the loan for 5% to 9.99% down, 3.10% for 10% to 14.99% and 2.80% for 15% to 19.99%, plus 0.20% if the amortization exceeds 25 years, and it is usually added to the mortgage. Learn more →

Commission

The fee paid to real-estate brokerages in a sale. It is commonly a percentage of the sale price and negotiable, and GST generally applies to it. Learn more →

Compounding

Interest calculated on both the original amount and the interest already added. It applies to mortgage interest and to investment growth. Learn more →

Condo fee

A regular charge paid by a condominium owner for shared costs, such as building maintenance, insurance, management and the reserve fund. Fees can rise over time. Learn more →

Contract rate

The interest rate written into your mortgage agreement. It is different from the qualifying rate used in the stress test. Learn more →

Credit score

A number summarizing your credit history that lenders use, with the underlying report, to decide whether to lend and at what rate. Learn more →

D

Deed transfer tax

A tax or fee charged when ownership of a property changes. Names and rates differ by province and sometimes by municipality, so confirm the amount with your lawyer. Learn more →

Down payment

The part of the purchase price you pay up front. The federal minimum is 5% of the first $500,000 plus 10% of the portion from $500,000 to under $1.5 million, and 20% at $1.5 million or more. Learn more →

E

Equity

The part of a home you own: its value minus the mortgage balance. Equity grows as you pay down the loan and as the value changes, and selling costs reduce what you can actually keep. Learn more →

F

FHSA

The First Home Savings Account. It has a $8,000 annual contribution limit and a $40,000 lifetime limit, contributions are deductible and qualifying first-home withdrawals are tax-free. Check current rules on carry-forward room. Learn more →

Fixed-rate mortgage

A mortgage whose interest rate stays the same for the term. Canadian fixed rates compound semi-annually by law. Learn more →

G

GDS

Gross debt service ratio: the share of your gross income that goes to housing costs such as mortgage payments, property tax and heat. Lenders use it with TDS to check affordability. Learn more →

GST on commission

The goods and services tax that generally applies to real-estate commission. The calculator models it separately, so the effective commission cost is higher than the percentage alone. Learn more →

H

Home Buyers’ Amount

A federal non-refundable tax credit worth up to $1,500 for eligible first-time home buyers. Learn more →

Home Buyers’ Plan

A program that lets you withdraw up to $60,000 per person from your RRSP for a first home, repaid over time. Confirm the current rules. Learn more →

Home inspection

A visual, non-invasive review of a property’s condition by a qualified inspector, usually made a condition of the offer. It is not a guarantee against future problems. Learn more →

Home insurance

Coverage for the building and its contents that lenders require owners to carry. It usually costs more than a renter’s policy and is a recurring cost of ownership. Learn more →

Housing budget

The total monthly amount a household spends on housing. The calculator gives both households the same total budget, with the cheaper path investing the difference. Learn more →

I

Inflation

The general rise in prices over time, which reduces what money can buy. The Bank of Canada targets 2%. Learn more →

Interest rate differential (IRD)

A common method for calculating the prepayment penalty on a fixed-rate mortgage, based on the gap between your rate and a current comparison rate. Your contract sets the formula. Learn more →

Investment return

The growth of invested money, expressed as a percentage per year. It is uncertain, and past returns do not guarantee future ones. Learn more →

L

Land Titles fees

Registration fees charged in Alberta on the transfer and the mortgage. Since October 20, 2024 they are $50 plus $5 per $5,000 of value, charged on each. Learn more →

Land transfer tax

A provincial or municipal tax on property transfers. Alberta has none, while Ontario, British Columbia and Manitoba use tiered schedules. Learn more →

Leverage

Using borrowed money to hold a larger asset than your cash alone would allow. A mortgage gives leverage on a home, which magnifies gains and losses on its value. Learn more →

Liquidity

How quickly an asset can be turned into cash without a large loss. Investments are usually more liquid than a home, which costs time and money to sell. Learn more →

Loan-to-value (LTV)

The mortgage amount divided by the home’s value, expressed as a percentage. At 80% or below, meaning at least 20% down, mortgage default insurance is not required. Learn more →

M

Maintenance

The ongoing cost of repairs and upkeep that an owner pays. The calculator models it as a percentage of the home’s value each year. Learn more →

Monte Carlo simulation

A method that reruns the model many times with randomly varied home-price growth and investment returns to show a range of outcomes. It is illustrative, not a forecast. Learn more →

Mortgage default insurance

Insurance required when the down payment is under 20%, protecting the lender. The borrower pays the premium, usually added to the mortgage. Insured mortgages are limited to prices under $1.5 million. Learn more →

Mortgage pre-approval

A lender’s preliminary review of your documents and credit that indicates the amount and rate it would likely offer, subject to conditions. It is not a final commitment. Learn more →

Mortgage pre-qualification

A quick estimate of what you might borrow, based on information you provide. It is less detailed than a pre-approval and is not a commitment. Learn more →

N

Net worth

Assets minus debts. In the calculator, the buyer’s net worth is home value minus mortgage balance and selling costs plus any investments, and the renter’s is the investment account. Learn more →

Nominal vs real

Nominal amounts are in future dollars at face value, while real amounts are adjusted for inflation to show today’s purchasing power. The calculator can show both. Learn more →

O

Opportunity cost

What you give up by choosing one use of money over another. A down payment tied up in a home could otherwise be invested, which is the central trade-off in buy vs rent. Learn more →

P

Prepayment penalty

A fee for paying off all or part of a mortgage ahead of schedule, often the greater of a few months of interest or an interest rate differential amount. Check your contract. Learn more →

Price-to-rent ratio

A home’s price divided by the annual rent for a comparable home. A higher ratio generally means buying is relatively more expensive than renting, though it is only a rough guide. Learn more →

Principal residence exemption

The rule that generally makes the gain on selling your principal residence tax-free, provided the home qualifies and the sale is reported on your tax return. Different rules apply to rental use, partial business use and non-residents. Learn more →

Property tax

An annual municipal tax based on a property’s assessed value. Owners pay it directly or through the mortgage, and it is not tax-deductible on a principal residence in Canada. Learn more →

Q

Qualifying rate

The rate used in the mortgage stress test: the greater of your contract rate plus 2 percentage points or 5.25%. Learn more →

R

Renewal

The point at the end of a mortgage term when you renegotiate or switch lenders. Your new rate may be higher or lower, which is a risk for owners. Learn more →

Rent control

Rules limiting how much and how often a landlord can raise rent. Regimes differ by province, and Alberta has no rent-control cap, though proper written notice is still required. Check your province’s tenancy board. Learn more →

Rent growth

The annual percentage increase in rent. It is an assumption in the calculator, since actual increases depend on your lease, province and unit. Learn more →

Reserve fund

Money a condominium corporation sets aside for major repairs and replacements. A weak reserve fund can lead to higher fees or special assessments. Learn more →

RRSP

The Registered Retirement Savings Plan, a tax-deferred account. Renters can use RRSP room too, and the Home Buyers’ Plan lets first-time buyers withdraw from it for a home. Learn more →

S

Secondary suite

A separate dwelling unit within or beside a house, such as a basement suite. Its legality, permits, safety-code compliance and insurance must be verified with the municipality and a lawyer. Learn more →

Selling costs

The costs of selling a home, including commission, GST on commission, legal and other fees and any mortgage penalty. They reduce the buyer’s net worth in the calculator. Learn more →

Semi-annual compounding

Interest calculated twice a year. Canadian fixed-rate mortgages compound semi-annually by law, so the effective monthly rate is slightly lower than the quoted rate divided by 12. Learn more →

Sensitivity analysis

Testing how the result changes when one or two inputs, such as appreciation or investment return, are varied. It shows which assumptions matter most. Learn more →

Special assessment

A one-time charge to condominium owners to cover costs that the reserve fund and regular fees do not. It can be large and hard to predict. Learn more →

Stress test

The requirement to qualify at the greater of your contract rate plus 2 percentage points or 5.25%. Straight switches at renewal for uninsured mortgages are generally exempt (confirm). Learn more →

T

TDS

Total debt service ratio: the share of your gross income that goes to housing costs plus all other debt payments. Lenders use it with GDS. Learn more →

Tenant insurance

A policy that covers a renter’s belongings and liability. It is usually far cheaper than home insurance and is included in the renter’s monthly cost in the calculator. Learn more →

Term

The length of time a mortgage’s rate and conditions are fixed, commonly five years, after which the mortgage renews. It is different from amortization. Learn more →

TFSA

The Tax-Free Savings Account. Growth and withdrawals are tax-free, and renters and buyers can both use the room to save or invest. Learn more →

Time horizon

How long you expect to stay in the home or in the rental. It is often the most important driver of the buy vs rent result. Learn more →

Title insurance

A one-time policy that protects against certain title defects and fraud. It is part of typical closing costs. Learn more →

Total cost of owning

All the costs of holding a home, including mortgage interest, property tax, insurance, maintenance, utilities, condo fees and transaction costs, less any income. Learn more →

U

Utilities

Ongoing costs such as heat, power and water. Owners often pay more than renters, so the calculator includes an extra monthly utilities amount for owners. Learn more →

V

Vacancy allowance

An amount set aside for periods when a rental suite sits empty. It reduces the income you can count on from a tenant. Learn more →

Variable-rate mortgage

A mortgage whose rate moves with a benchmark rate. Variable rates are typically quoted with monthly compounding. Learn more →