Mortgage Glossary
Every mortgage term you'll encounter — explained in plain English. No jargon, no confusion.
A
Amortization Period
The total length of time it takes to pay off your mortgage in full, typically 25 years in Canada (up to 30 years for insured mortgages with 5% down on new builds as of 2024). A longer amortization means lower monthly payments but more interest paid overall.
Annual Percentage Rate (APR)
The true annual cost of borrowing, including the interest rate plus lender fees expressed as a yearly rate. Useful for comparing mortgage products because it reflects the total cost, not just the stated rate.
Appraisal
An independent professional estimate of a property's market value, ordered by the lender to ensure they aren't lending more than the home is worth. Typically costs $350–$500 and may be required for conventional mortgages.
B
Blended Mortgage
A mortgage that combines your existing mortgage balance (at the original rate) with a new top-up amount (at a current rate), resulting in a blended interest rate between the two. A way to access equity without breaking your mortgage.
Bridge Financing
A short-term loan that bridges the gap when you buy a new home before selling your current one. It covers the down payment on the new property using your existing home's equity until the sale closes.
Buy-Down Rate
A reduced interest rate that either you or the seller pays for upfront (as a lump sum) to lower your monthly payments. Common in new construction when developers offer rate incentives.
C
Closed Mortgage
A mortgage that cannot be paid off, refinanced, or renegotiated before the end of the term without paying a prepayment penalty. In exchange, closed mortgages offer lower interest rates than open mortgages.
CMHC Insurance (Mortgage Default Insurance)
Mandatory insurance for mortgages with less than 20% down. Provided by CMHC, Sagen, or Canada Guaranty. The premium (0.60%–4.00% of the mortgage amount) is added to your mortgage balance. It protects the lender — not you — in case of default.
Collateral Mortgage
A type of mortgage registration that allows the lender to secure other debts (like a line of credit) against your property, up to a registered amount that may exceed your mortgage balance. Less portable than a conventional mortgage when switching lenders.
Conventional Mortgage
A mortgage where the down payment is 20% or more of the purchase price. No CMHC insurance is required, and you have more lender options compared to an insured mortgage.
D
Debt Service Ratio
There are two types: Gross Debt Service (GDS) — the percentage of income used for housing costs (mortgage, property tax, heat, 50% of condo fees). Total Debt Service (TDS) — GDS plus all other monthly debt obligations. Lenders typically cap GDS at 39% and TDS at 44%.
Default
Failure to meet the terms of your mortgage agreement — usually missing scheduled payments. In Canada, most lenders consider a mortgage in default after 3 missed payments. Default can lead to the lender initiating power of sale proceedings.
Down Payment
The portion of the purchase price you pay upfront, not financed by the mortgage. The Canadian minimum is 5% for homes under $500K, 10% on the portion between $500K–$999K, and 20% for homes $1M+.
E
Equity
The difference between your home's current market value and the outstanding balance on your mortgage. Equity grows as you pay down your mortgage and as property values increase. You can borrow against equity via a HELOC or refinance.
F
First Home Savings Account (FHSA)
A registered account introduced in 2023 allowing first-time buyers to save up to $8,000/year ($40,000 lifetime). Contributions are tax-deductible; qualifying withdrawals for a first home purchase are tax-free. Combines the benefits of an RRSP and TFSA.
Fixed Rate Mortgage
A mortgage where the interest rate is locked in for the entire term (typically 1–5 years). Your payment amount stays the same throughout the term, providing payment certainty regardless of market rate changes.
FSRA (Financial Services Regulatory Authority)
Ontario's regulator for mortgage brokers and agents. All mortgage professionals in Ontario must be licensed by FSRA. You can verify any agent's licence at the FSRA website.
G
Guarantor
A person who agrees to be responsible for the mortgage debt if the primary borrower defaults. Unlike a co-signer, a guarantor's income may not be used to help qualify for the mortgage — they exist solely as a backup.
H
HELOC (Home Equity Line of Credit)
A revolving line of credit secured against your home equity, typically available up to 65% of your home's value. Interest-only payments are allowed, and you only pay interest on what you've drawn. Rates are variable, usually Prime + a small spread.
High-Ratio Mortgage
A mortgage where the down payment is less than 20% of the purchase price. These mortgages require CMHC mortgage default insurance and are limited to homes priced under $1.5M (as of 2024 rule changes).
I
Insured Mortgage
A mortgage backed by CMHC default insurance, required when the down payment is under 20%. The insurance premium (paid by the borrower, added to the mortgage) protects the lender if you default.
Interest Rate
The percentage of your mortgage balance charged annually as the cost of borrowing. In Canada, mortgage interest is compounded semi-annually by law, meaning the effective rate is slightly higher than the stated rate.
L
Land Transfer Tax (LTT)
A provincial tax paid when property changes hands. In Ontario, rates range from 0.5%–2.5% of the purchase price depending on the price tier. Toronto charges an additional municipal LTT. First-time buyers qualify for rebates up to $4,000 (Ontario) and $4,475 (Toronto).
Lender
The institution that provides the mortgage funds. This includes Schedule A banks (Big 6), credit unions, trust companies, mortgage investment corporations (MICs), and private lenders. Each has different rate structures, qualification criteria, and terms.
Loan-to-Value Ratio (LTV)
The mortgage amount divided by the appraised property value, expressed as a percentage. A $400,000 mortgage on a $500,000 home = 80% LTV. Lower LTV means less risk for the lender and better rates for the borrower.
M
Maturity Date
The date your mortgage term ends. At maturity, you either renew with the same lender, transfer to a new lender, or pay off the remaining balance. Failing to act at maturity typically rolls you onto a costly open mortgage rate.
Mortgage Agent / Mortgage Broker
A licensed professional who shops multiple lenders on your behalf to find the best rate and terms. Brokers represent many lenders; bank employees represent only their employer. Brokers are typically paid by the lender, not you.
O
Open Mortgage
A mortgage that can be prepaid or paid off in full at any time without penalty. Offers maximum flexibility but comes at a significantly higher interest rate — usually 1–2% more than a comparable closed mortgage.
P
Payment Frequency
How often you make mortgage payments. Options include monthly, semi-monthly, bi-weekly, accelerated bi-weekly, weekly, and accelerated weekly. Accelerated options align payments with a 26-payment year, effectively making one extra monthly payment annually and saving significant interest.
Portability
The ability to transfer your existing mortgage (including its rate and remaining term) to a new property when you move, without breaking the mortgage or paying a penalty. Useful if your current rate is lower than available market rates.
Pre-Approval
A conditional commitment from a lender specifying how much you can borrow, at what rate, for a set period (typically 90–120 days). Requires a full credit check and document review. A pre-approval holds your rate if rates rise while you house hunt.
Prepayment Privilege
The right to pay extra toward your mortgage principal beyond the regular scheduled payment, without penalty. Most lenders allow 10–20% of the original principal per year as a lump sum, plus payment increases of 10–20%. This reduces your amortization.
Prime Rate
The benchmark interest rate set by major Canadian banks, influenced by the Bank of Canada's overnight rate. Variable rate mortgages and HELOCs are typically priced as Prime ± a spread. Currently: 4.95%.
R
Refinance
Breaking your current mortgage and replacing it with a new one — usually to access equity, get a better rate, or consolidate debt. May involve a prepayment penalty. Most beneficial when rate savings or debt consolidation savings outweigh the penalty cost.
Renewal
When your mortgage term ends, you renew for a new term with either the same or a different lender. This is the best time to shop rates — you can switch lenders without penalty, and the market often offers better rates than your current lender's posted renewal offer.
RRSP Home Buyers Plan (HBP)
A federal program allowing first-time buyers to withdraw up to $35,000 from their RRSP tax-free to use as a down payment. Couples can withdraw $70,000 combined. The amount must be repaid to the RRSP over 15 years.
S
Semi-Annual Compounding
Under Canadian law, mortgage interest must be compounded semi-annually (twice per year), not monthly. This means the stated annual rate understates the true effective rate slightly. The effective rate = (1 + stated rate / 2)² − 1.
Stress Test
A federal qualification rule (B-20) requiring borrowers to prove they can afford payments at the higher of: their contract rate + 2%, or 5.25%. Designed to ensure borrowers can handle rising rates. Applies to all federally regulated lenders.
T
Term
The length of time your mortgage contract is in effect with a lender — typically 1–5 years in Canada. At the end of the term, you renew, refinance, or pay out the remaining balance. The term is different from the amortization period.
Title Insurance
A one-time insurance policy protecting against losses related to ownership disputes, undisclosed liens, errors in public records, or fraud. Typically costs $200–$400 and is recommended by almost all real estate lawyers.
V
Variable Rate Mortgage
A mortgage where the interest rate fluctuates with the lender's prime rate throughout the term. When the Bank of Canada raises or lowers its policy rate, your rate (and often your payment) changes. Variable rates have historically resulted in less interest paid over time, but come with payment uncertainty.
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