Canadian Mortgage Glossary
39 essential mortgage terms explained with Canadian-specific definitions and examples.
- Amortization
- The total period over which you repay your mortgage in full. In Canada, the standard is 25 years, though 30-year amortizations are available for first-time buyers with CMHC insurance (with a 0.20% surcharge).Example: A 25-year amortization on a $500K mortgage at 4.5% means 300 monthly payments.
- Appraisal
- A professional assessment of a property's market value, ordered by the lender to ensure the home is worth the purchase price. Typically costs $300-$500.
- Bi-weekly Accelerated Payments
- Paying half your monthly payment every two weeks (26 payments/year instead of 24). This results in one extra monthly payment per year, reducing your amortization by 3-4 years.Example: $2,000/month → $1,000 bi-weekly × 26 = $26,000/year vs $24,000 with regular bi-weekly.
- Blended Payment
- A mortgage payment that combines both principal and interest in a fixed amount each period. Most Canadian mortgages use blended payments.
- Bridge Financing
- A short-term loan that covers the gap when you buy a new home before selling your current one. Typically 1-90 days at higher interest rates.
- Closed Mortgage
- A mortgage that restricts prepayment beyond your annual prepayment privileges. Breaking a closed mortgage early triggers a penalty (typically the greater of 3 months' interest or the IRD).
- CMHC Insurance
- Mortgage default insurance required when your down payment is less than 20%. Provided by CMHC, Sagen, or Canada Guaranty. The premium (0.60%-4.00%) is added to your mortgage principal.→ See CMHC premium tiers
- Conventional Mortgage
- A mortgage where the down payment is 20% or more of the purchase price. No CMHC insurance is required, but rates may be slightly higher (uninsurable category).
- Cost of Borrowing
- The total amount you will pay in interest, fees, and insurance premiums over the life of your mortgage. Under the Bank Act, lenders must disclose the cost of borrowing before you sign. This includes your interest rate, CMHC premiums (if applicable), and certain closing costs.Example: On a $475,000 mortgage at 4.5% over 25 years, the cost of borrowing in interest alone exceeds $308,000.→ Understand your cost of credit
- Cost of Credit
- The true total cost of your mortgage beyond just the interest rate. Includes compound interest over your full amortization, CMHC insurance premiums, penalties, and the opportunity cost of your equity. Managing your cost of credit — not chasing the lowest rate — is the key to paying less over the life of your mortgage.Example: A 4.5% rate with 25-year amortization can have a lower cost of credit than a 4.2% rate with 30-year amortization.→ Calculate your cost of credit
- Debt Service Ratios (GDS/TDS)
- GDS (Gross Debt Service) = housing costs ÷ gross income ≤ 39%. TDS (Total Debt Service) = all debts ÷ gross income ≤ 44%. Used by lenders to determine how much you can borrow.
- Down Payment
- The portion of the purchase price you pay upfront. Minimum 5% in Canada for homes under $500K; 20% for homes over $1.5M.→ Full down payment rules
- Effective Rate
- The actual interest rate after accounting for compounding. Canadian fixed mortgages compound semi-annually (not monthly), so the effective rate differs from the posted rate.
- Equity
- The difference between your home's current market value and the outstanding mortgage balance. Equity grows as you pay down principal and as property values increase.
- FHSA (First Home Savings Account)
- A registered savings account for first-time buyers. Contributions are tax-deductible ($8,000/year, $40,000 lifetime). Withdrawals for a qualifying home purchase are tax-free.→ FHSA details
- Fixed Rate
- An interest rate that remains constant for the entire mortgage term. Provides payment certainty. Fixed rates are influenced by Government of Canada 5-year bond yields.→ How rates are set
- High-Ratio Mortgage
- A mortgage where the loan-to-value ratio exceeds 80% (down payment < 20%). Requires CMHC insurance.
- Home Buyers' Plan (HBP)
- Allows you to withdraw up to $60,000 from your RRSP tax-free for a home purchase. Must be repaid over 15 years.→ HBP guide
- Insurable Rate
- A rate tier for mortgages that meet insurance criteria (≥ 20% down, ≤ $1M purchase, ≤ 25yr amortization, purchase only) but where the borrower chose not to insure. Mid-tier pricing.→ Compare insurable rates
- Insured Rate
- The lowest rate tier, available on CMHC-insured mortgages (< 20% down). The insurance reduces lender risk, resulting in the best rates.→ Compare insured rates
- IRD (Interest Rate Differential)
- A penalty for breaking a fixed-rate mortgage early. Calculated as the difference between your contract rate and the lender's current rate for the remaining term, applied to your balance. Often the larger of IRD or 3 months' interest.→ IRD explained
- Land Transfer Tax (LTT)
- A provincial tax paid when purchasing real estate. Varies by province: Ontario uses brackets (0.5%-2.5%), Alberta has no LTT, and Toronto has an additional municipal LTT.→ Calculate your LTT
- Loan-to-Value (LTV)
- The mortgage amount expressed as a percentage of the property's value. LTV = Mortgage ÷ Property Value × 100. An LTV above 80% requires CMHC insurance.Example: $480K mortgage on $600K home = 80% LTV (no insurance needed).
- Maturity Date
- The date when your mortgage term ends and must be renewed, refinanced, or paid in full. Not to be confused with amortization end date.
- Monoline Lender
- A financial institution that only offers mortgage products (not banking services). Examples: MCAP, First National, RMG. Often offer the most competitive rates through brokers.
- Mortgage Broker
- A licensed professional who shops your mortgage across multiple lenders (banks, credit unions, monolines) to find the best rate and terms. In Canada, brokers are regulated provincially (e.g., BCFSA in BC, RECA in AB, FSRA in ON).Example: Mortgages Lab is licensed by BCFSA (X030114), RECA (LIC-00537605), and FSRA (13547).
- Mortgage Qualifying Rate (MQR)
- The minimum rate at which all borrowers must qualify under the stress test. Set by the Bank of Canada, currently 5.25%. Used when it exceeds contract rate + 2%.→ Stress test guide
- Open Mortgage
- A mortgage that can be prepaid in full at any time without penalty. Rates are typically higher than closed mortgages. Useful if you plan to sell or refinance soon.
- OSFI
- The Office of the Superintendent of Financial Institutions — the federal regulator of banks and federally regulated financial institutions. Responsible for the B-20 stress test guideline.→ B-20 guide
- Porting
- Transferring your existing mortgage (including rate and terms) to a new property when you move. Avoids breaking the mortgage and paying penalties. Not all mortgages are portable.
- Pre-Approval
- A lender's conditional commitment to lend you a specific amount at a locked rate (typically valid 90-120 days). Requires a credit check and income verification. Stronger than pre-qualification.
- Prepayment Privileges
- Your right to pay extra toward your mortgage without penalty. Most Canadian mortgages allow 10-20% of the original balance per year as lump-sum payments, and/or increasing regular payments by 10-20%.
- Prime Rate
- The benchmark interest rate set by individual banks, influenced by the Bank of Canada's overnight rate. Variable mortgage rates are expressed as Prime ± a discount/premium.Example: Variable rate of Prime - 0.50% means if Prime is 5.95%, your rate is 5.45%.→ How Prime is set
- Refinancing
- Breaking your existing mortgage to get new terms (different rate, access equity, consolidate debt). Triggers penalties and may require a new appraisal and stress test.→ Refinance vs renewal
- Renewal
- When your mortgage term ends, you negotiate new terms with your current lender (or switch to a new one). No stress test required if staying with the same lender. Your renewal is the single biggest opportunity to reduce your cost of credit — or the biggest risk of increasing it if you auto-sign without shopping around.→ 9 renewal risks to know
- Semi-Annual Compounding
- The Canadian standard for fixed-rate mortgages. Interest compounds twice per year (not monthly). This results in a slightly lower effective rate than the posted rate. Required by the Bank Act.Example: A 4.99% posted rate compounds to an effective monthly rate of approximately 0.4116%.
- Term
- The period for which your mortgage contract is set (typically 1-5 years in Canada). At the end of the term, you renew or renegotiate. Not the same as amortization.
- Uninsurable Rate
- The highest rate tier, for mortgages that cannot qualify for CMHC insurance: refinances, properties over $1M, amortizations over 25 years, or rental properties.→ Compare uninsurable rates
- Variable Rate
- An interest rate that fluctuates with the Bank of Canada's prime rate. Payments may stay fixed (with changing principal/interest split) or adjust with each rate change.→ BoC rate impact
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