Quick Reference
Mortgage glossary
Clear, jargon-free definitions of essential Canadian mortgage terms. Search or browse alphabetically to understand the language of your mortgage with confidence.
Amortization
The total length of time to fully repay your mortgage. Common periods are 25 or 30 years. A longer amortization lowers your monthly payment but increases the total interest paid over the life of the mortgage. First-time buyers purchasing new builds may now qualify for 30-year amortization.
Appraisal
A professional assessment of a property's market value conducted by a certified appraiser. Lenders may require an appraisal before approving your mortgage to ensure the property is worth the purchase price. Appraisals typically cost $300 to $500.
Blended Rate
A weighted average of your existing mortgage rate and a new rate, calculated when you increase your mortgage amount or make changes mid-term. This avoids the full prepayment penalty of breaking your mortgage and starting fresh.
Bridge Financing
A short-term loan that covers the gap between closing on your new home and receiving the proceeds from the sale of your existing home. Typically needed when your purchase closes before your sale.
CMHC Insurance
Mortgage default insurance provided by Canada Mortgage and Housing Corporation (CMHC), Sagen, or Canada Guaranty. Required when your down payment is less than 20% of the purchase price. The premium ranges from 2.80% to 4.00% of the loan amount and is typically added to the mortgage balance.
Closing Costs
Additional expenses beyond the purchase price that are due on closing day. Common costs include land transfer tax, legal fees, title insurance, home inspection, appraisal, property tax adjustments, and moving expenses. Budget 1.5% to 4% of the purchase price.
Conventional Mortgage
A mortgage where the down payment is 20% or more of the purchase price. Conventional mortgages do not require mortgage default insurance (CMHC) but may have slightly higher interest rates compared to insured mortgages.
Fixed Rate Mortgage
A mortgage where the interest rate remains the same for the entire term of the contract, regardless of changes to the Bank of Canada's overnight rate. Provides payment certainty and predictability. Most popular choice among Canadian borrowers.
FHSA (First Home Savings Account)
A registered account allowing first-time home buyers to save up to $8,000 per year ($40,000 lifetime) on a tax-deductible basis. Withdrawals for a qualifying home purchase are completely tax-free. Can be combined with the RRSP Home Buyers' Plan for maximum tax-advantaged savings.
GDS Ratio (Gross Debt Service)
The percentage of your gross household income needed to cover housing costs, including mortgage payments, property taxes, heating, and 50% of condo fees. Most lenders require a GDS ratio of 39% or less to qualify for a mortgage.
HELOC (Home Equity Line of Credit)
A revolving line of credit secured against your home equity, allowing you to borrow up to 65% of your property's appraised value (combined mortgage and HELOC cannot exceed 80%). Interest-only payments on the amount drawn. Flexible access for renovations, investments, or other purposes.
High-Ratio Mortgage
A mortgage where the down payment is less than 20% of the purchase price, requiring mandatory mortgage default insurance from CMHC, Sagen, or Canada Guaranty. High-ratio mortgages (insured) often qualify for slightly lower interest rates.
Interest Rate Differential (IRD)
A prepayment penalty calculation used by lenders when you break a fixed-rate mortgage before the term ends. Based on the difference between your contracted rate and the lender's current rate for the remaining term. IRD penalties can be substantial.
Loan-to-Value Ratio (LTV)
The mortgage amount expressed as a percentage of the property's appraised value. An 80% LTV means you have 20% equity. LTV affects your rate, insurance requirements, and refinancing options. Maximum LTV for a purchase is 95% (5% down); for a refinance, 80%.
Mortgage Stress Test
A federal requirement since 2018 that all borrowers must qualify at the higher of their contract rate plus 2%, or the Bank of Canada's benchmark qualifying rate (currently 5.25%). Applies to purchases, refinances, and renewals with a new lender.
Portable Mortgage
A mortgage feature allowing you to transfer your existing mortgage (same rate, term, and balance) to a new property when you move. Avoids prepayment penalties and preserves your current rate. Not all mortgages are portable; terms vary by lender.
Pre-Approval
A written commitment from a lender for a specific mortgage amount at a guaranteed interest rate, typically held for 90 to 120 days. Strengthens your position when making offers and protects you from rate increases during your home search.
Prepayment Privileges
The amount you can pay toward your mortgage above your regular payments each year without incurring a penalty. Typically 10% to 20% of the original mortgage balance per year. Maximizing prepayments saves significant interest.
TDS Ratio (Total Debt Service)
The percentage of your gross household income needed to cover all debt obligations, including housing costs plus car payments, student loans, credit card minimums, and other debts. Most lenders require a TDS ratio of 44% or less.
Term
The length of your mortgage contract with a specific lender at a specific interest rate. Common terms range from 1 to 5 years (5-year fixed is most popular). At the end of each term, you renew your mortgage until the full amortization period is complete.
Variable Rate Mortgage
A mortgage where the interest rate fluctuates with the Bank of Canada's overnight lending rate. Adjustable-rate variable mortgages change your payment amount; static-payment variable mortgages keep your payment the same but adjust how much goes to principal vs. interest.
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