Mortgage Glossary

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Overview

50+ Canadian mortgage terms - defined in plain English.

Buying a home means learning a new vocabulary. This glossary covers the terms you'll hear from lenders, brokers, realtors, and lawyers throughout your mortgage journey.

A

Accelerated biweekly payment

A payment schedule of 26 half-payments per year, each equal to half a monthly payment. Results in one extra full payment annually, reducing amortization and total interest.

Amortization

The total time to pay off your mortgage in full. In Canada, typical amortization periods are 25 or 30 years. Longer amortization = lower payments but more interest over time.

Appraisal

A professional valuation of a property's market value, ordered by the lender to confirm the home is worth the purchase price. Required on most purchases and refinances.

Assumption

When a buyer takes over the seller's existing mortgage, including its rate and terms. Rare in Canada; lender approval required.

B

B-lender

An alternative lender for borrowers who don't qualify at A-lenders (big banks). B-lenders offer more flexible underwriting at slightly higher rates.

Blended rate

A combined interest rate when you increase your mortgage mid-term (e.g., for a renovation). Blends your existing rate with the current market rate.

Bridge financing

A short-term loan used when you buy a new home before selling your current one. Covers the gap between purchase and sale proceeds.

Break penalty

A fee charged for paying off or refinancing your mortgage before the end of its term. Calculated differently by lender - often 3 months' interest or interest rate differential (IRD).

C

Closed mortgage

A mortgage with restrictions on prepayment before term end. Generally offers lower rates than open mortgages. Some closed mortgages allow limited prepayment (e.g., 10-20% annually).

CMHC (Canada Mortgage and Housing Corporation)

A Crown corporation providing mortgage default insurance on high-ratio loans (down payment less than 20%). Also sets underwriting guidelines for insured mortgages.

Closing costs

Fees paid at purchase on top of your down payment. Typically 1.5%-4% of purchase price, including legal fees, title insurance, land transfer tax, and adjustments.

Closing date

The date ownership transfers and funds are disbursed. Your first mortgage payment usually follows one month after closing.

Co-borrower

A second person on the mortgage who shares responsibility for repayment. Both borrowers' incomes and debts are considered for qualification.

Conventional mortgage

A mortgage with at least 20% down payment (loan-to-value of 80% or less). No default insurance required.

Convertible mortgage

A short-term mortgage that can be converted to a longer term without penalty, usually at the lender's current rates.

D

Debt service ratios

Lender calculations of how much of your income goes to housing and total debt. See GDS and TDS.

Default insurance

Insurance protecting the lender if you stop paying. Required on high-ratio mortgages. Premium is added to your mortgage balance. Providers: CMHC, Sagen, Canada Guaranty.

Down payment

The portion of the purchase price you pay from your own funds. Minimum 5% for homes up to $500K; 10% on the portion above $500K up to $1.5M (insured).

E

Equity

The difference between your home's current market value and your remaining mortgage balance. Builds as you pay down principal and as property values rise.

Expiry date

The date your mortgage term ends. You must renew, refinance, or pay off the balance.

F

FHSA (First Home Savings Account)

A registered account for first-time buyers. Contributions are tax-deductible; growth and qualifying withdrawals for a first home are tax-free. Limit: $8,000/year, $40,000 lifetime.

Fixed-rate mortgage

An interest rate locked for the entire term. Payments stay the same regardless of market rate changes.

Foreclosure

Legal process where the lender takes possession of a property after prolonged payment default. Power of sale is more common in Ontario.

G

GDS (Gross Debt Service ratio)

Housing costs (mortgage payment, property tax, heating, 50% of condo fees) divided by gross income. Must generally be ≤ 39% to qualify.

Gift letter

A signed document confirming down payment funds are a non-repayable gift from a family member. Required by lenders when gifted funds are used.

H

HBP (Home Buyers' Plan)

Allows first-time buyers to withdraw up to $60,000 from RRSPs tax-free for a down payment. Must be repaid over 15 years.

HELOC (Home Equity Line of Credit)

A revolving credit line secured against your home equity. Pay interest only on amounts drawn. Often registered as a second charge behind the first mortgage.

High-ratio mortgage

A mortgage with less than 20% down payment. Requires default insurance (CMHC, Sagen, or Canada Guaranty).

I

Interest rate

The cost of borrowing, expressed as an annual percentage. Fixed rates stay constant; variable rates fluctuate with the lender's prime rate.

Interest rate differential (IRD)

A prepayment penalty calculation based on the difference between your contract rate and the lender's current rate for the remaining term.

L

Land transfer tax (LTT)

A provincial tax on property purchases in Ontario, BC, Manitoba, Quebec, and other provinces. Toronto adds a municipal LTT. Alberta and Saskatchewan have no LTT.

LTV (Loan-to-Value)

Mortgage amount divided by property value. 80% LTV = 20% down payment. Higher LTV = more risk = insurance required below 80%.

M

Maturity date

The end date of your current mortgage term. Same as expiry date.

Monoline lender

A lender that offers mortgages only - no chequing, savings, or credit cards. Often competitive rates because they don't cross-sell banking products.

Mortgage broker

A licensed professional who shops multiple lenders on your behalf. Paid by the lender, not the borrower, on standard mortgages.

Mortgage term

The length of your current rate contract (typically 1-5 years, up to 10). Different from amortization. At term end, you renew or refinance.

N

NOA (Notice of Assessment)

A CRA document confirming your reported income and taxes. Lenders require 2 years of NOAs for most applications.

NRST (Non-Resident Speculation Tax)

A 25% surcharge on property purchases by foreign nationals in Ontario. Canadian citizens and permanent residents are exempt.

O

Open mortgage

A mortgage that can be paid off in full at any time without penalty. Higher interest rate than closed mortgages. Useful for short-term ownership.

Offer to purchase

A legally binding agreement between buyer and seller. Once accepted, submitted to the lender for mortgage approval.

P

Payment default

Failure to make mortgage payments as agreed. Can lead to power of sale or foreclosure.

Portability

The ability to transfer your existing mortgage - including its rate and terms - to a new property without a prepayment penalty.

Power of sale

Ontario's process allowing a lender to sell a property after mortgage default, without court foreclosure proceedings.

Pre-approval

A conditional commitment from a lender stating how much you can borrow, with a rate hold (typically 90-120 days). Stronger than pre-qualification.

Pre-qualification

An informal estimate of borrowing power based on self-reported income. No credit check or document verification. Not sufficient for making offers.

Prepayment privilege

The right to pay extra toward your mortgage without penalty. Common allowances: 10-20% of original principal annually, plus payment increases of 10-100%.

Prepayment charge

See break penalty.

Principal

The original amount borrowed, or the portion of each payment that reduces the outstanding balance (vs. interest).

Prime rate

The benchmark rate set by major banks, used to calculate variable mortgage rates (e.g., prime - 0.75%).

Private mortgage

A loan from a non-institutional lender (individual, MIC, or private fund). Approval based primarily on property equity rather than income/credit.

Property tax

Annual tax levied by municipality based on assessed property value. Often collected monthly with your mortgage payment (held in escrow).

R

Rate hold

A lender's guarantee of a specific interest rate for 90-120 days while you shop for a property or prepare for renewal.

Refinance

Replacing your existing mortgage with a new one - often to access equity, consolidate debt, or get a better rate. May trigger a prepayment penalty if done mid-term.

Renewal

Signing a new term with your existing lender (or switching) when your current term expires. No penalty if done at maturity.

Reverse mortgage

A loan for homeowners 55+ that provides tax-free cash with no required monthly payments. Repaid when the home is sold or the owner moves out.

S

Second mortgage

An additional loan secured behind your first mortgage, using available home equity. Includes HELOCs and home equity loans.

Stress test

Federal requirement to qualify at the higher of: your contract rate + 2%, or 5.25%. Ensures you can afford payments if rates rise.

T

TDS (Total Debt Service ratio)

All monthly debt payments (housing + car loans, credit cards, student loans, etc.) divided by gross income. Must generally be ≤ 44% to qualify.

Title insurance

Insurance protecting against title fraud, survey issues, and ownership disputes. One-time premium at closing.

Title

Legal ownership of a property, registered with the provincial land registry.

V

Variable-rate mortgage

A mortgage where the interest rate fluctuates with the lender's prime rate. Payments may stay fixed (with principal/interest split adjusting) or change with rate.

Quick Reference: Key Ratios & Rules

Black Knight Capital Inc. · FSRA License #13667 · OAC. For general education only - not tax, legal, or lending advice. Not a commitment to lend.