Reference
Mortgage Glossary
44 Canadian mortgage terms explained in plain language. From amortization to vendor take-back mortgages, find the definitions you need.
Amortization
The total length of time it takes to pay off your mortgage in full, typically 25 or 30 years in Canada. A longer amortization means lower monthly payments but more total interest paid over the life of the loan.
Mortgage CalculatorAppraisal
A professional assessment of a property's market value conducted by a licensed appraiser. Lenders require an appraisal to confirm the property is worth the amount being borrowed against it.
Assumable Mortgage
A mortgage that can be transferred from the seller to the buyer when a property is sold. The buyer takes over the existing mortgage terms, which can be advantageous if the rate is lower than current market rates.
Blended Mortgage
A mortgage that combines the remaining balance at the old rate with new money at current rates, producing a blended interest rate. Often used to avoid prepayment penalties when refinancing before the end of a term.
Bridge Financing
A short-term loan that helps you cover the gap when you buy a new home before selling your existing one. Bridge loans are typically for a few weeks to a few months and carry higher interest rates.
Broker
A licensed mortgage professional who acts as an intermediary between borrowers and lenders. Brokers have access to multiple lenders and can shop rates on your behalf. In BC, mortgage brokers must be licensed with BCFSA.
CMHC Insurance
Mortgage default insurance provided by Canada Mortgage and Housing Corporation. Required when your down payment is less than 20% of the purchase price. The premium (typically 2.8% to 4.0% of the mortgage) is usually added to your mortgage balance.
Closed Mortgage
A mortgage that limits or restricts prepayment during the term. Breaking a closed mortgage early triggers a prepayment penalty, typically the greater of three months' interest or the Interest Rate Differential (IRD).
Penalty CalculatorConventional Mortgage
A mortgage where the down payment is 20% or more of the property's value. Conventional mortgages do not require CMHC insurance, which can save thousands in premiums.
Credit Score
A numerical rating (300 to 900 in Canada) that represents your creditworthiness. Most A-lenders require a minimum score of 680. Scores below 650 may require alternative or private lending solutions.
Debt Service Ratios
Two key ratios lenders use to determine how much you can borrow. Gross Debt Service (GDS) measures housing costs as a percentage of gross income (max 39%). Total Debt Service (TDS) includes all debts (max 44%).
Affordability CalculatorDown Payment
The portion of the purchase price you pay upfront. In Canada, the minimum is 5% for homes up to $500,000, 10% for the portion between $500,000 and $1.5 million, and 20% for homes over $1.5 million.
Discharge
The legal process of removing a mortgage from a property's title after it has been paid in full or when switching lenders. There is typically a discharge fee of $200 to $400.
Equity
The difference between your home's current market value and the amount you owe on your mortgage. Equity builds as you make payments and as your property value increases.
Employment Letter
A document from your employer confirming your position, salary, and length of employment. Most lenders require an employment letter as part of the mortgage application process.
Fixed Rate
A mortgage where the interest rate stays the same for the entire term, regardless of market fluctuations. Provides payment certainty but may start higher than variable rates.
Compare Fixed RatesFirst-Time Home Buyer
In Canada, someone who has not owned a home in the past four years. First-time buyers may be eligible for the Home Buyers' Plan (withdraw up to $60,000 from RRSP), the First-Time Home Buyer Incentive, and the land transfer tax rebate.
GDS (Gross Debt Service Ratio)
The percentage of your gross annual income needed to cover housing costs including mortgage payments, property taxes, heating, and 50% of condo fees. Most lenders cap GDS at 39%.
Affordability CalculatorHigh-Ratio Mortgage
A mortgage where the down payment is less than 20% of the property value. High-ratio mortgages require mortgage default insurance (CMHC, Sagen, or Canada Guaranty), with premiums ranging from 2.8% to 4.0%.
HELOC
Home Equity Line of Credit. A revolving credit facility secured against your home equity. You can borrow up to 65% of your home's value (combined with your mortgage, up to 80%). Interest rates are typically prime plus a margin.
Insured Mortgage
A mortgage backed by mortgage default insurance (CMHC, Sagen, or Canada Guaranty). All high-ratio mortgages must be insured. Insured mortgages often qualify for the lowest rates because lenders bear less risk.
Interest Rate Differential (IRD)
A prepayment penalty calculation based on the difference between your current mortgage rate and the lender's current rate for the remaining term. IRD penalties can be significantly larger than three months' interest, sometimes costing tens of thousands of dollars.
Penalty CalculatorLoan-to-Value (LTV)
The ratio of the mortgage amount to the property's appraised value, expressed as a percentage. An LTV of 80% means you have a 20% down payment. LTV above 80% requires mortgage default insurance.
Lump Sum Payment
An extra payment made against your mortgage principal, in addition to your regular payments. Most mortgages allow annual lump sum payments of 10% to 20% of the original balance without penalty.
Maturity Date
The date when your current mortgage term expires and must be renewed, renegotiated, or paid in full. You should start shopping for renewal rates at least 120 days before maturity.
Renewal SavingsMortgage Default Insurance
Insurance that protects the lender (not you) if you default on your mortgage. Required when your down payment is less than 20%. Provided by CMHC, Sagen, or Canada Guaranty.
Notice of Assessment (NOA)
A document from the Canada Revenue Agency (CRA) confirming your reported income and tax owed for a given tax year. Lenders require the most recent NOA as proof of income during the mortgage application.
Open Mortgage
A mortgage that allows you to prepay any amount at any time without penalty. Open mortgages carry higher interest rates than closed mortgages but offer maximum flexibility.
Portable Mortgage
A mortgage that can be transferred from one property to another when you move. Portability lets you keep your existing rate and terms, avoiding prepayment penalties.
Pre-Approval
A lender's conditional commitment to lend you a specific amount at a guaranteed rate, typically valid for 90 to 120 days. A pre-approval gives you confidence when shopping for a home and signals to sellers that you are a serious buyer.
Prepayment Penalty
A charge imposed by the lender when you pay off your mortgage early, make a lump sum payment exceeding your prepayment privileges, or break your mortgage mid-term. The penalty is typically the greater of three months' interest or the IRD.
Penalty CalculatorPrime Rate
The benchmark interest rate set by Canadian banks, influenced by the Bank of Canada's overnight rate. Variable-rate mortgages are typically priced as prime minus or plus a discount/premium.
Private Mortgage
A mortgage funded by a private investor or mortgage investment corporation (MIC) rather than a traditional bank or credit union. Private mortgages are used when borrowers don't qualify through conventional channels, with higher rates (7% to 15%) and shorter terms (1 to 3 years).
Private Mortgage OptionsQualifying Rate (Stress Test)
The rate used to determine if you can afford your mortgage payments under higher interest rate conditions. Since 2018, all Canadian borrowers must qualify at the greater of 5.25% or their contract rate plus 2%. This applies regardless of your down payment size.
Renewal
The process of renegotiating your mortgage terms when your current term expires. You are not obligated to renew with your current lender — shopping around often yields a better rate.
Renewal Impact CalculatorRefinance
Replacing your existing mortgage with a new one, typically to access equity, consolidate debt, or get a better rate. Refinancing usually involves new legal and appraisal fees and may trigger a prepayment penalty on your current mortgage.
Reverse Mortgage
A mortgage product for Canadian homeowners aged 55 and older that lets you access up to 55% of your home's equity as tax-free cash without making monthly payments. The loan is repaid when you sell, move, or pass away. Available from HomeEquity Bank, Equitable Bank, and Bloom Finance.
Reverse Mortgage CalculatorStress Test
A federal requirement that all mortgage applicants must prove they can afford payments at a qualifying rate higher than their actual contract rate. The minimum qualifying rate is the greater of 5.25% or the contract rate plus 2%.
T4 Statement
A tax slip issued by employers showing total employment income and deductions for the year. Lenders typically require two years of T4s as proof of income for mortgage applications.
Term
The length of time your current mortgage contract and interest rate are in effect, typically 1 to 5 years in Canada. At the end of the term, you renew or pay the balance. Not to be confused with amortization, which is the total repayment period.
Title Insurance
Insurance that protects against losses due to defects in a property's title, including fraud, liens, encroachments, and survey errors. Title insurance is a one-time purchase typically required by lenders at closing.
TDS (Total Debt Service Ratio)
The percentage of your gross annual income needed to cover all debt obligations, including housing costs plus car loans, credit cards, student loans, and other debts. Most lenders cap TDS at 44%.
Affordability CalculatorVariable Rate
A mortgage where the interest rate fluctuates with the lender's prime rate. When prime goes up, more of your payment goes to interest (or your payment increases). Variable rates typically start lower than fixed rates but carry more risk.
Compare Variable RatesVendor Take-Back Mortgage
A mortgage where the property seller provides financing to the buyer, often as a second mortgage. Used when the buyer cannot qualify for the full amount through traditional lenders. Common in private sales and commercial transactions.
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