Plain-language definitions for Canadian homebuyers and homeowners.
The mortgage term is how long your current contract (rate and lender rules) lasts-often a few years. Amortization is the total time you are scheduled to take to pay off the loan in full-often 25 or 30 years. You may have several terms within one amortization period.
At renewal, you negotiate a new term when your current one ends, usually with the same lender. Refinancing means replacing your existing mortgage with a new one-often to change the amount, rate, lender, or structure-which may involve legal and appraisal costs.
Mortgage default insurance (often called CMHC or mortgage insurance) protects the lender if you default on a high-ratio loan; it is not the same as optional life, disability, or critical illness insurance that may pay your mortgage if you become ill or die. Optional borrower insurance is a separate product you choose-or decline.
The total length of time your lender schedules for you to pay off your mortgage in full if you make every payment on time and do not change the loan. A longer amortization usually means lower payments but more interest over time.
A mortgage with limits on how much extra you can pay toward the principal before the term ends without a penalty. Many closed mortgages still allow some prepayment under a prepayment privilege.
One-time expenses you pay to complete a purchase or refinance, in addition to the down payment. They can include legal fees, land transfer tax, title insurance, appraisal fees, and adjustments. Budget for them separately from your down payment.
A mortgage where the down payment is at least 20% of the purchase price (or the home’s value, depending on the transaction), so mortgage default insurance is generally not required for the loan to be considered conventional under federal rules.
A record of how you have borrowed and repaid debts, used by lenders to help assess mortgage applications. Strong, consistent payment habits over time can support your application; issues such as missed payments may limit options.
The portion of the purchase price you pay upfront. The minimum required down payment in Canada depends on the price of the home and whether mortgage default insurance applies. A larger down payment reduces the amount you borrow.
A registered account that can help eligible Canadians save for a first home with tax advantages. Contributions may be deductible, and qualifying withdrawals for a first home purchase may be tax-free, subject to CRA rules, limits, and eligibility.
An interest rate that stays the same for the length of your mortgage term. Your principal and interest payment amount typically stays the same during that term, which can make budgeting predictable.
A debt ratio lenders use to see how much of your gross (before-tax) monthly income goes toward housing costs. It usually includes your mortgage payment, property taxes, heating, and often half of monthly condo fees. Lenders compare your GDS to their maximum limits, along with other affordability checks, when reviewing a mortgage application.
A revolving line of credit secured by your home. You can borrow up to an approved limit, repay, and borrow again. Interest rates are usually variable. Using a HELOC increases debt secured by your home.
A mortgage where the down payment is less than 20% of the purchase price, so federal rules generally require mortgage default insurance on the loan.
The value of your home minus what you still owe on mortgages and home-secured lines of credit. Equity can grow as you pay down the loan or if the property value rises, and it can fall if values drop or debt increases.
The cost of borrowing money. On a mortgage, part of each payment goes to interest and part to principal. Early in amortization, a larger share often goes to interest.
The percentage a lender charges on the amount you borrow. It may be fixed for the term or variable, and your contract will show how the rate is set and when it can change.
The mortgage amount divided by the value of the home (or purchase price, depending on the transaction), expressed as a percentage. A higher LTV usually means a smaller down payment and may require mortgage default insurance.
Insurance that protects the lender-not you-if you default on a high-ratio mortgage. It is required by law for many loans with less than 20% down. The premium is usually added to the mortgage amount. This is not optional life or disability insurance.
The regular amount you pay the lender, usually monthly. It typically includes principal and interest. Property taxes or insurance may be collected with the payment if you use a tax or insurance escrow arrangement with the lender.
The length of your current mortgage contract-for example, six months to five years or longer. When the term ends, you renew or renegotiate unless you pay the balance in full. The term is not the same as amortization.
A mortgage that allows you to pay off the full balance before the term ends without a prepayment penalty. Open mortgages often have higher interest rates than closed mortgages.
Separate insurance products-such as life, disability, or critical illness coverage linked to your mortgage-that you may be offered when you get a mortgage. They are not the same as mortgage default insurance. You can usually decline them; review terms and alternatives carefully.
A feature that may let you transfer your existing mortgage to a new property when you move, subject to lender approval, the mortgage contract, and sometimes a top-up or new rate blend.
A lender’s preliminary indication of how much you may be able to borrow, based on information you provide and a review of your credit. It is not a guarantee of final approval or a specific rate until the property and full application are reviewed.
A fee your lender may charge if you pay more than your prepayment privilege allows, pay off the mortgage early, or break the contract before the term ends. The amount depends on the lender and your mortgage type.
The amount you can pay toward your mortgage principal ahead of schedule each year without a penalty, as set out in your contract-for example, a lump sum or higher regular payments.
The amount you borrowed, not including interest. As you make payments, the principal balance goes down. Do not confuse principal with “principle” (a rule or belief).
In mortgages, principal is the loan balance. Principle means a fundamental rule or belief. When you read about paying down your “principal,” that is the debt itself-not “principle.”
A lender’s commitment to hold a quoted interest rate for you for a set period while you shop for a home or complete your application. Terms and conditions apply; a hold is not the same as a final mortgage approval.
Replacing your existing mortgage with a new one-often to change the amount borrowed, the rate, the term, or the lender. Refinancing can involve appraisal, legal fees, and prepayment penalties on the old mortgage.
When your current mortgage term ends, you sign a new term with your lender-or switch lenders-without necessarily paying the full balance. You may negotiate rate, payment, and prepayment options for the new term.
A federal rule that requires federally regulated lenders to check whether you can afford payments at a qualifying rate that is higher than your contract rate. It affects how much you may qualify to borrow.
A debt ratio that measures how much of your gross (before-tax) monthly income goes toward housing costs plus your other regular debt payments—such as car loans, student loans, credit cards, and lines of credit. TDS is usually higher than GDS because it includes non-housing debts. Lenders use TDS together with GDS and other factors to assess how much you may qualify to borrow.
Insurance that protects against certain problems with the property’s title, such as defects or fraud, depending on the policy. It is often purchased at closing and is separate from mortgage default insurance.
An interest rate that can change when the lender’s prime rate or your contract’s index changes. Your payment may stay the same while the split between principal and interest shifts, or your payment may change-depending on your mortgage terms.
This glossary is general information only. It is not legal, tax, or lending advice. Mortgage rules, products, and your situation can differ. Speak with a licensed mortgage professional about your options.
Definitions were checked against the official sources linked below. Programs and rules change; confirm details on the source site.
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