Essential mortgage terms and definitions explained in plain language
Understanding mortgage terminology is essential when navigating the home buying process. This comprehensive glossary explains the key terms you'll encounter when applying for a mortgage in Canada.
A mortgage with an interest rate that fluctuates based on market conditions. In Canada, these are more commonly called variable rate mortgages.
The total length of time it will take to pay off your mortgage completely. Twenty-five years is common in Canada. Eligible first-time buyers and buyers of newly built homes may qualify for a 30-year insured amortization, while some uninsured mortgages can also extend to 30 years subject to lender policy.
A professional assessment of a property's market value conducted by a licensed appraiser. Lenders require an appraisal to ensure the property is worth at least as much as the mortgage amount. Appraisal costs typically range from $300-$500 and are paid by the buyer.
A legal document that allows a buyer to take over the seller's existing mortgage, including its terms, interest rate, and remaining balance. The buyer must qualify with the lender to assume the mortgage.
A mortgage payment that includes both principal and interest. The payment amount stays the same throughout the term, but the proportion going to principal versus interest changes over time (more interest at first, more principal later).
A short-term financing arrangement that may help bridge timing between purchasing a new home and receiving proceeds from the sale of an existing home. Availability, term, rate, fees and required sale documentation vary by lender.
A licensed mortgage professional who can place business with the lenders available through that broker. A broker may compare multiple products, while a representative of one lender offers that lender's products. Availability, fees and compensation vary.
A mortgage that cannot be paid off, renegotiated, or refinanced before the end of the term without paying a prepayment penalty. Closed mortgages restrict prepayments beyond the contractual privilege and may charge a penalty for early payout; pricing and flexibility vary by product.
The expenses beyond the down payment that are due when you complete a home purchase. These typically include legal fees, land transfer tax, title insurance, home inspection, and appraisal fees. Closing costs usually total 1.5-4% of the purchase price.
The date when the sale of the property is finalized, ownership transfers to the buyer, and you receive the keys to your new home. This is also when your mortgage begins.
A federal Crown corporation that provides mortgage loan insurance for high-ratio mortgages (those with less than 20% down payment). CMHC insurance protects lenders if borrowers default on their mortgages. Premiums range from 2.8% to 4% of the mortgage amount.
A type of mortgage registration that allows you to borrow additional money against your home equity without refinancing, up to a specified limit (often 125% of the home's value). While flexible, collateral mortgages can be more difficult and expensive to switch to another lender.
A mortgage where the down payment is at least 20% of the home's value. A conventional or low-ratio mortgage generally has at least 20% down and does not require borrower-paid high-ratio mortgage default insurance; rates and features vary by lender and product.
A mortgage with a contract feature that permits conversion to another mortgage type or term under specified conditions. Eligible terms, rates and fees are set by the lender and contract.
A numerical score derived from credit-report information and used as one input in lending decisions. Mortgage credit requirements and pricing vary by lender and product; CMHC publishes a minimum score of 600 for at least one borrower or guarantor on common insured products.
Calculations that lenders use to determine how much mortgage debt you can afford. The two main ratios are GDS (Gross Debt Service) and TDS (Total Debt Service).
The failure to make mortgage payments as agreed in your mortgage contract. Defaulting on a mortgage can lead to foreclosure, where the lender takes possession of the property.
The initial amount of money you pay toward the purchase of a home. In Canada, the minimum down payment is 5% for homes under $500,000, with higher percentages required for more expensive homes. A down payment of 20% or more allows you to avoid mortgage insurance.
The difference between your home's current market value and the amount you owe on your mortgage. As you pay down your mortgage and/or your home increases in value, your equity grows.
The process of refinancing your mortgage to borrow against the equity you've built in your home. In Canada, you can typically borrow up to 80% of your home's appraised value minus what you still owe.
Definitions vary by program, but many federal programs use a four-year lookback rule. First-time buyers may qualify for benefits such as the FHSA, Home Buyers' Plan, the Home Buyers' Amount tax credit, and provincial or municipal land-transfer-tax rebates. The former First-Time Home Buyer Incentive stopped accepting new applications in 2024.
A mortgage with an interest rate that remains constant throughout the entire term. This provides payment stability and protection against rising interest rates, but you won't benefit if rates decrease.
A legal process where a lender takes possession of a property when the borrower defaults on mortgage payments. The lender can then sell the property to recover the outstanding loan amount.
The percentage of your gross monthly income required to cover housing costs (mortgage payment, property taxes, heating, and 50% of condo fees). For CMHC-insured planning, a standard maximum GDS ratio is 39%, while lender and insurer underwriting can vary.
A person who agrees to be legally responsible for your mortgage payments if you cannot make them. Having a guarantor can help you qualify for a mortgage if you have limited income or credit history.
A revolving line of credit secured against the equity in your home. You can borrow, repay, and re-borrow up to your credit limit. Interest rates are typically prime rate plus a premium, and you only pay interest on what you borrow.
A mortgage where the down payment is less than 20% of the home's value. These mortgages require mortgage default insurance from CMHC, Sagen, or Canada Guaranty.
A federal program that allows an eligible participant to withdraw up to $60,000 from RRSPs to buy or build a qualifying home without immediate tax on the withdrawal. The amount is generally repaid over 15 years, subject to the repayment-start rules that apply to the year of the first withdrawal.
A professional examination of a property's condition, including structural elements, electrical, plumbing, HVAC, and other systems. A home inspection typically costs $400-$600 and helps identify potential issues before you complete the purchase.
A mortgage protected by mortgage default insurance from an approved insurer. Eligible high-ratio mortgages with less than 20% down generally require mortgage default insurance, subject to insurer and federal eligibility rules.
The date when your mortgage interest starts accumulating. If your closing date is not on your regular payment date, you'll pay interest from the closing date to the IAD.
The percentage charged by a lender for borrowing money. The interest rate determines how much you'll pay in interest over the life of your mortgage. Rates can be fixed or variable.
A provincial or municipal tax paid when ownership of a property transfers from seller to buyer. The amount varies by province and property value. Some provinces offer rebates for first-time buyers.
A financial institution (bank, credit union, or mortgage company) that provides mortgage financing. Lenders evaluate your creditworthiness and determine your loan amount, interest rate, and terms.
A legal claim against a property for an unpaid debt. Liens must be paid off before a property can be sold. Common types include mortgage liens, tax liens, and mechanic's liens.
The ratio of your mortgage amount to the appraised value or purchase price of the home (whichever is lower). For example, if you buy a $500,000 home with a $400,000 mortgage, your LTV is 80%.
The last day of your current mortgage term. At maturity, you can renew your mortgage, pay it off in full, or refinance with the same or different lender.
A loan secured by real property. The borrower (mortgagor) receives funds from the lender (mortgagee) and agrees to repay the loan with interest over a specified period. If the borrower defaults, the lender can take possession of the property.
A licensed professional who acts as an intermediary between borrowers and lenders. Brokers can compare products from the lenders available through them. Compensation may come from lenders and, in some transactions, borrower fees may apply; ask for the required compensation and fee disclosures.
Insurance that protects the lender against borrower default. It is generally required for eligible high-ratio mortgages. Premiums depend on loan-to-value, product and amortization and can generally be added to the mortgage principal; applicable provincial sales tax on the premium cannot be financed.
Optional insurance that pays off your mortgage if you die or become disabled. Different from mortgage default insurance. While convenient, it's often more expensive than regular term life insurance and the coverage decreases as you pay down your mortgage.
The regular amount paid to your lender, typically monthly. Payments usually include principal, interest, and may also include property taxes and insurance if escrowed.
A qualification requirement where borrowers must prove they can afford mortgage payments at a higher interest rate than their actual rate. Where the federal minimum qualifying rate applies, it is currently the higher of the contract rate plus 2% or 5.25%. Eligible straight-switch renewals can be exempt under current rules.
The total value of your assets minus your liabilities. Lenders may consider your net worth when evaluating your mortgage application, especially for self-employed borrowers.
A mortgage that doesn't meet standard lending criteria. May include stated income mortgages, mortgages for self-employed borrowers, or those with credit issues. Typically available through alternative or private lenders at higher rates.
A mortgage that can be paid off at any time without penalty. Open mortgages offer maximum flexibility but typically have higher interest rates than closed mortgages. Good for short-term needs or if you expect to pay off the mortgage soon.
The federal agency that regulates banks, insurance companies, and other financial institutions in Canada. OSFI sets mortgage lending guidelines including the stress test requirements.
How often you make mortgage payments. Options include monthly, bi-weekly, weekly, or accelerated versions. Accelerated payment frequencies can help you pay off your mortgage faster.
A mortgage feature that allows you to transfer your existing mortgage to a new property without penalty. Useful if you're moving before your term ends and want to keep your current rate.
A lender's preliminary assessment of how much you can borrow based on your income, debts, and credit score. A pre-approval is a preliminary assessment and may include a rate hold for a lender-specific period. It is not a final approval and remains subject to documentation, underwriting and the property.
An extra payment made toward your mortgage principal, beyond your regular payment. Prepayments reduce your principal faster and save on interest. Many closed mortgages include annual lump-sum and/or payment-increase privileges, but the percentage and conditions are contract-specific.
A fee charged for paying off more than your allowed prepayment amount or breaking your mortgage before the term ends. Penalty formulas are contract-specific. A fixed-rate mortgage may use three months' interest, an interest-rate-differential calculation or another disclosed formula; obtain a current payout quote from the lender.
The interest rate that banks charge their most creditworthy customers. Variable mortgage rates are typically expressed as prime plus or minus a percentage. Prime rate follows the Bank of Canada's overnight rate but is set by individual banks.
The original amount borrowed for your mortgage, excluding interest. As you make payments, the principal decreases while you build equity in your home.
A non-institutional lender (individual or company) that provides mortgages outside traditional banking channels. Private mortgages use lender-specific underwriting and can have materially different rates, fees, term lengths and exit conditions from prime-lender mortgages. Compare the complete cost and obtain appropriate advice.
An annual tax levied by municipalities on property owners. Based on your property's assessed value and the local tax rate. Can be paid directly to the municipality or through your mortgage payment.
The rate used in a mortgage affordability calculation. Where the federal minimum qualifying rate applies, it is currently the higher of the contract rate plus 2% or 5.25%; eligible straight-switch renewals can be exempt under current rules.
A lender commitment to hold a quoted rate for a specified period, subject to the lender's conditions. The hold period and treatment of lower rates vary by lender and product.
Replacing or materially changing your existing mortgage, potentially with a different lender, rate, amount or amortization. Common reasons include accessing home equity or consolidating debt. Refinancing may involve qualification, prepayment penalties and new closing costs. See our Mortgage Refinancing Canada guide.
The process of setting a new mortgage term when the current term ends. You can stay with your current lender, switch to a new lender, or pay the balance. Switching at maturity generally avoids an early-break prepayment penalty, although transfer, discharge, legal, appraisal or registration costs may still apply. See our Mortgage Renewal Canada guide.
A loan that allows homeowners aged 55+ to borrow against their home equity without making payments. The loan is repaid when the homeowner sells, moves out, or passes away. Available through CHIP Reverse Mortgage in Canada.
An additional mortgage taken out on a property that already has a first mortgage. Second mortgages are subordinate to the first mortgage, meaning they're paid second if the property is sold. They typically have higher interest rates due to increased risk.
A mortgage for borrowers who are self-employed and may not have traditional income documentation. May require additional documentation like tax returns, financial statements, and higher down payments.
A condition in a purchase agreement that makes the sale contingent on the buyer obtaining mortgage approval. Protects buyers from losing their deposit if they cannot secure financing.
A document showing the exact boundaries of a property and the location of buildings on it. Lenders may require an up-to-date survey or accept title insurance instead. New surveys cost $1,000-$2,000.
The percentage of your gross monthly income required to cover all debt obligations, including housing costs (GDS) plus other debts like car loans, credit cards, and student loans. Lenders typically want TDS below 40-44%.
The length of time your mortgage agreement and interest rate are in effect, typically 1-5 years in Canada. At the end of the term, you can renew, refinance, or pay off the mortgage. The term is different from the amortization period.
The legal right to own a property. When you buy a home, the title transfers from the seller to you. A title search ensures there are no liens, claims, or restrictions on the property.
Insurance that protects you and your lender against title defects, fraud, survey errors, and certain legal costs. Title insurance typically costs $250-$400 and is a one-time payment at closing.
The process where a lender evaluates your mortgage application, credit history, income, debts, and the property to determine if they'll approve your mortgage and on what terms.
A mortgage with a down payment of 20% or more that doesn't require mortgage default insurance. Also called a conventional mortgage.
A mortgage where the interest rate fluctuates with the lender's prime rate. When prime rate goes up or down, your payment may change, or the split between principal and interest may adjust. A variable rate is generally linked to the lender's prime rate plus or minus a spread. It may be above or below a comparable fixed offer and can change during the term.
A mortgage where the seller provides financing to the buyer instead of the buyer obtaining a traditional mortgage. Often used when buyers have difficulty qualifying for conventional financing or for a second mortgage.
The voluntary relinquishment of a condition in a purchase agreement. For example, waiving the financing condition means you're committed to the purchase even if you can't secure a mortgage.
The return on an investment expressed as a percentage. In mortgage terms, it's the lender's return on the mortgage loan, which equals the interest rate plus any fees charged.
Municipal regulations that dictate how properties in specific areas can be used (residential, commercial, industrial, etc.). Zoning restrictions can affect property value and what you can do with your home.
Use our free calculators to see how these terms apply to your situation, or explore our educational guides to learn more about the Canadian mortgage process.
Try Our CalculatorsIf you need clarification on any mortgage terms or have questions about the home buying process, feel free to contact us at info@mortgagetoolscanada.ca or visit our website at https://mortgagetoolscanada.ca/
Last reviewed: September 2026