Key Terms
Mortgage Glossary
Plain-language definitions of the mortgage terms every Canadian homebuyer should know. No jargon, no fluff.
A
Amortization
The total length of time it takes to pay off your mortgage in full. Common amortization periods in Canada are 25 and 30 years. A longer amortization means lower monthly payments but more total interest paid.
Appraisal
A professional assessment of a property's market value, conducted by a certified appraiser. Lenders often require an appraisal to confirm the property is worth the purchase price before approving a mortgage.
B
Blended Rate
A rate that combines your existing mortgage rate with a new rate when you increase your mortgage amount or change terms mid-term. It avoids the prepayment penalty of breaking your current mortgage.
Bridge Financing
A short-term loan that covers the gap when you buy a new home before selling your current one. Typically lasts a few days to a few months and is repaid from the proceeds of your existing home sale.
Broker
A licensed mortgage professional who works independently of any single lender. Brokers compare rates and terms across multiple lenders (often 60+) to find the best mortgage for your situation. Their services are typically free for residential borrowers.
C
Closing Costs
Fees and expenses beyond the purchase price that are due on closing day. In Calgary, these typically include legal fees, title insurance, home inspection, and property tax adjustments. Budget 1.5-2.5% of the purchase price.
CMHC (Canada Mortgage and Housing Corporation)
A federal Crown corporation that provides mortgage default insurance for borrowers with less than 20% down payment. CMHC insurance protects the lender if you default, allowing them to offer mortgages with as little as 5% down.
Collateral Mortgage
A mortgage registered for more than the actual loan amount (often up to 125% of the property value). It allows you to borrow additional funds later without re-registering the mortgage, but makes it harder to switch lenders at renewal.
Consumer Proposal
A legally binding agreement between you and your creditors to repay a portion of your debts over time. It appears on your credit report and affects mortgage qualification, but some lenders work with active or discharged proposals.
Conventional Mortgage
A mortgage with a down payment of 20% or more. Conventional mortgages do not require mortgage default insurance (CMHC), which saves you a significant premium.
D
Debt Service Ratios (GDS/TDS)
GDS (Gross Debt Service) measures your housing costs as a percentage of gross income (limit: 39%). TDS (Total Debt Service) adds all other debts to housing costs (limit: 44%). These ratios determine how much mortgage you qualify for.
Default Insurance
Insurance required when your down payment is less than 20% of the purchase price. Provided by CMHC, Sagen, or Canada Guaranty. The premium (2.8-4.0% of the mortgage amount) is typically added to your mortgage balance.
Down Payment
The portion of the purchase price you pay upfront. In Canada, the minimum is 5% for homes up to $500,000, 10% on the portion above $500,000, and 20% for homes at $1.5 million or above.
E
Equity
The difference between your property's market value and the remaining mortgage balance. Equity grows as you pay down your mortgage and as property values increase. You can access equity through refinancing or a HELOC.
F
FHSA (First Home Savings Account)
A registered account that lets first-time buyers save up to $8,000/year ($40,000 lifetime) tax-free for a home purchase. Contributions are tax-deductible like an RRSP, and qualifying withdrawals are completely tax-free.
Fixed Rate
A mortgage rate that remains the same for the entire term. Your payment amount never changes, providing certainty regardless of market rate fluctuations. Fixed rates are influenced by Government of Canada bond yields.
H
High-Ratio Mortgage
A mortgage where the down payment is less than 20% of the purchase price. High-ratio mortgages require mortgage default insurance from CMHC, Sagen, or Canada Guaranty.
Home Buyers' Plan (HBP)
A federal program allowing first-time buyers to withdraw up to $60,000 from their RRSP tax-free for a home purchase (or $120,000 for couples). Repayment begins in the second year after withdrawal, spread over 15 years.
I
Interest Rate Differential (IRD)
A prepayment penalty calculation used by lenders when you break a fixed-rate mortgage early. It represents the difference between your contract rate and the lender's current rate for the remaining term. IRD penalties can be substantial.
Insured Mortgage
Another term for a high-ratio mortgage — one backed by mortgage default insurance. Insured mortgages often receive slightly better interest rates because the lender's risk is reduced by the insurance.
L
Loan-to-Value Ratio (LTV)
The mortgage amount expressed as a percentage of the property's appraised value. An LTV of 80% means you have 20% equity. Lower LTV ratios generally qualify for better rates and terms.
M
Maturity Date
The date your current mortgage term ends. At maturity, you can renew with your current lender, switch to a new lender, or pay off the mortgage. Start shopping renewal options 4-6 months before maturity.
Monoline Lender
A lender that offers only mortgage products (not banking, credit cards, or investments). Monoline lenders often offer the most competitive mortgage rates because mortgages are their sole focus.
Mortgage Term
The length of your current mortgage contract, typically 1-5 years in Canada. At the end of each term, you renew or renegotiate your rate and terms. The term is different from the amortization period.
O
Open Mortgage
A mortgage that can be paid off in full at any time without penalty. Open mortgages carry higher interest rates than closed mortgages. They are useful if you expect to sell soon or receive a large sum of money.
P
Portable Mortgage
A mortgage feature that allows you to transfer your existing mortgage (rate and terms) to a new property when you move. This avoids prepayment penalties and can save you money if your current rate is lower than current market rates.
Pre-Approval
A formal commitment from a lender for a specific mortgage amount and rate, typically with a rate hold of 90-120 days. Pre-approval requires income and credit verification and gives you a clear budget for house hunting.
Prepayment Privileges
The amount you can pay on top of your regular mortgage payments each year without penalty. Most Canadian mortgages allow 10-20% annual lump sum payments and 10-20% payment increases.
Prime Rate
The interest rate that banks charge their most creditworthy borrowers. Variable mortgage rates are expressed as Prime plus or minus a percentage. The prime rate moves in response to Bank of Canada overnight rate changes.
Private Mortgage
A mortgage from a non-institutional lender (individual investor or private lending company). Private mortgages have higher rates (7-12%) and fees but are available to borrowers who do not qualify with traditional lenders. They are typically short-term (1 year).
R
Refinancing
Replacing your existing mortgage with a new one, typically to access equity, consolidate debt, or secure a better rate. You can refinance up to 80% of your property's appraised value in Canada.
S
Stated Income Mortgage
A mortgage program for self-employed borrowers that allows qualification based on a reasonable declared income for their occupation, rather than relying solely on tax returns. Typically requires 10-20% down and 2 years of business history.
Stress Test
A federal requirement that all borrowers must qualify at the higher of their contract rate plus 2% or the benchmark rate (currently 5.25%). The stress test ensures you can handle rate increases and applies to all purchases, renewals with a new lender, and refinances.
T
Title Insurance
Insurance that protects against losses from defects in property title, such as fraud, liens, or survey errors. Title insurance is required by most lenders and typically costs $250-$400 for residential properties in Alberta.
V
Variable Rate
A mortgage rate that fluctuates with the prime rate. When the Bank of Canada raises or lowers its overnight rate, your variable rate adjusts accordingly. Variable rates are historically lower over time but carry more uncertainty.
Need Help Understanding Your Mortgage?
Jay explains every term, every fee, and every option in plain language. Book a free consultation and get clarity on your mortgage.