Mortgage Glossary Canada
Unlocking Borrowing Terminology
Understanding mortgage terminology shouldn’t require a finance degree. Our mortgage glossary breaks down 90 key Canadian lending terms in plain language from amortization to zoning so you can navigate the mortgage process with confidence, whether you’re a first-time buyer, refinancing, or exploring your home equity options.
A
Amortization
The total length of time it takes to pay off a mortgage in full through regular payments. In Canada, the most common amortization period is 25 years, though some lenders offer 30-year amortization for insured or uninsured mortgages. A longer amortization reduces monthly payments but increases the total interest paid over the life of the loan.
Amortization Schedule
A table showing every scheduled mortgage payment over the life of the loan, broken down into principal and interest portions. Early in the amortization, most of each payment goes toward interest. Over time, a larger share applies to the principal balance.
Appraisal
A professional assessment of a property’s market value conducted by a certified appraiser. Lenders require an appraisal to confirm the property is worth enough to secure the mortgage. The borrower typically pays the appraisal fee, which in Canada generally ranges from $300 to $500 for a standard residential property.
Approval-in-Principle (Pre-Approval)
A conditional commitment from a lender indicating how much you may be eligible to borrow, based on an initial review of your income, credit, and debts. A pre-approval is not a guarantee of financing final approval depends on the property appraisal and a full verification of your financial details.
Arrears
Payments that are overdue. If you fall behind on your mortgage payments, you are said to be “in arrears.” Mortgage arrears can trigger penalties, damage your credit score, and eventually lead to power of sale or foreclosure proceedings if not resolved.
Assignment of Mortgage
The transfer of an existing mortgage from one lender to another, or from one borrower to another. An assignment may occur when a mortgage is sold between financial institutions or when a buyer assumes the seller’s existing mortgage as part of a home purchase.
B
B Lender (Alternative Lender)
A financial institution that lends to borrowers who may not meet the strict qualification criteria of A lenders (the big banks and credit unions). B lenders typically serve self-employed individuals, those with bruised credit, or borrowers with non-traditional income documentation. Interest rates are generally higher than A lender rates but lower than private mortgage rates.
Beacon Score
Another name for your credit score in Canada, specifically the score produced by Equifax using the FICO scoring model. Credit scores range from 300 to 900. Most A lenders require a minimum score of 600–680 for mortgage approval, while B lenders and private lenders may accept lower scores.
Blanket Mortgage
A single mortgage that covers two or more properties. Blanket mortgages are most commonly used by real estate investors or developers who want to finance multiple properties under one loan rather than obtaining separate mortgages for each.
Blended Payment
A mortgage payment that combines both principal and interest into a single, fixed amount. The most common payment structure in Canada. While the total payment stays the same, the ratio of principal to interest shifts over time—more interest at the beginning, more principal toward the end.
Bridge Financing (Bridge Loan)
A short-term loan that helps homeowners cover the gap when the closing date of a new home purchase falls before the closing date of the sale of their existing home. Bridge loans are typically arranged through your mortgage lender and carry higher interest rates due to their short duration.
Broker (Mortgage Broker)
A licensed professional who acts as an intermediary between borrowers and lenders. Unlike a bank representative who can only offer products from one institution, a mortgage broker has access to multiple lenders and can shop your application across the market to find the best rate and terms for your situation.
Buydown
An arrangement where the borrower pays an upfront lump sum to reduce the mortgage interest rate for a set period or the entire term. Buydowns effectively lower monthly payments in exchange for higher upfront costs.
C
Canada Mortgage and Housing Corporation (CMHC)
A federal Crown corporation that provides mortgage loan insurance to lenders for borrowers with a down payment of less than 20%. CMHC insurance protects the lender (not the borrower) against default. The insurance premium is calculated as a percentage of the mortgage amount and can be added to the mortgage balance.
Closed Mortgage
A mortgage that restricts prepayment beyond the terms specified in the contract. Breaking a closed mortgage before the end of the term typically triggers a prepayment penalty, which can be calculated as either three months’ interest or the interest rate differential (IRD), whichever is greater. Closed mortgages usually offer lower interest rates than open mortgages.
Closing Costs
The expenses beyond the purchase price that a buyer must pay when completing a real estate transaction. In Canada, common closing costs include legal fees, land transfer tax, title insurance, appraisal fees, home inspection fees, and adjustments for property taxes or utility bills prepaid by the seller.
Closing Date
The date on which the property sale is finalized, legal ownership transfers to the buyer, and the mortgage funds are advanced by the lender. In Canada, the buyer’s lawyer or notary handles the closing process, including registering the mortgage on title.
Collateral
An asset pledged as security for a loan. In a mortgage, the property itself serves as collateral. If the borrower defaults, the lender has the legal right to seize and sell the property to recover the outstanding debt.
Collateral Charge Mortgage
A type of mortgage registration that allows the lender to secure additional lending (such as a line of credit) against the same property without re-registering the mortgage. Major banks in Canada commonly use collateral charges. The downside is that switching lenders at renewal typically requires paying discharge and new registration fees.
Commitment Letter
A formal document from a lender confirming the approved mortgage amount, interest rate, term, and conditions. The commitment letter outlines everything the borrower must provide or satisfy before the mortgage can close.
Compound Interest
Interest calculated on both the original principal and the accumulated interest from previous periods. In Canada, mortgage interest is compounded semi-annually for fixed-rate mortgages (as required by law) and typically monthly for variable-rate mortgages.
Conventional Mortgage
A mortgage where the borrower’s down payment is 20% or more of the property’s purchase price. Because the loan-to-value ratio is 80% or lower, CMHC mortgage insurance is not required. Conventional mortgages may still require an appraisal depending on the lender.
Consumer Proposal
A legally binding agreement negotiated through a Licensed Insolvency Trustee (LIT) in which a borrower offers to repay a portion of their debts over a period of up to five years. A consumer proposal is an alternative to bankruptcy and, while it damages your credit rating, it may allow you to keep your home and eventually qualify for new mortgage financing.
D
Debt Consolidation
The process of combining multiple debts (credit cards, personal loans, vehicle financing) into a single loan, often secured against your home. By consolidating high-interest debts into a lower-interest mortgage, borrowers can reduce their total monthly payments and simplify their finances.
Debt Service Ratio
A calculation lenders use to determine whether a borrower can afford a mortgage. There are two types: the Gross Debt Service (GDS) ratio, which measures housing costs as a percentage of gross income, and the Total Debt Service (TDS) ratio, which includes all debt obligations. Most A lenders require a GDS below 39% and a TDS below 44%. Using a Debt Service Calculator is helpful.
Default
The failure to meet the legal obligations of a mortgage, most commonly by missing payments. A mortgage default can lead to the lender initiating power of sale or foreclosure proceedings to recover the debt.
Discharge
The legal process of removing a mortgage from the title of a property once the loan has been paid in full or when a borrower switches to a new lender. Discharge fees (typically $200–$400 in Canada) are charged by the existing lender to process the removal.
Down Payment
The portion of the purchase price that the buyer pays upfront from their own funds. In Canada, the minimum down payment is 5% of the first $500,000 of the purchase price and 10% of any amount above $500,000 up to $999,999. Properties valued at $1 million or more require a minimum 20% down payment.
E
Equity
The difference between the current market value of your home and the amount you owe on your mortgage and any other debts secured against the property. Equity increases as you pay down your mortgage and as the value of your home appreciates. You can borrow against your equity through a home equity loan, HELOC, or refinance.
Equitable Mortgage
A mortgage arrangement where the borrower’s property serves as security for the loan, but the mortgage has not been formally registered against the title. Equitable mortgages are less common and carry a higher risk for the lender, which typically results in higher interest rates.
Equity Take-Out (Equity Release)
The process of accessing the equity in your home involves increasing your mortgage amount or taking out a new loan secured against the property. Homeowners commonly use equity take-out for renovations, debt consolidation, investing, or covering large expenses.
F
First Home Savings Account (FHSA)
A registered account introduced by the Canadian government that allows first-time home buyers to save up to $40,000 ($8,000 per year) tax-free toward the purchase of a qualifying home. Contributions are tax-deductible (like an RRSP), and withdrawals for a home purchase are tax-free (like a TFSA).
First Mortgage
The primary mortgage registered against a property, which takes priority over all other liens and mortgages in the event of default. If the property is sold through power of sale or foreclosure, the first mortgage is paid out before any second or third mortgages.
Fixed-Rate Mortgage
A mortgage where the interest rate remains the same for the entire term. The borrower’s regular payment amount does not change, regardless of fluctuations in the market interest rate. Fixed-rate mortgages offer payment predictability but typically start at a slightly higher rate than variable-rate mortgages.
Foreclosure
A legal process in which the lender takes ownership of a property after the borrower defaults on the mortgage. In some Canadian provinces (such as Alberta), foreclosure is the standard remedy. In Ontario, lenders more commonly use the power of sale process. Foreclosure can severely damage your credit rating for up to seven years.
FSRA (Financial Services Regulatory Authority of Ontario)
The provincial regulator that oversees mortgage brokerages, brokers, and agents in Ontario. All mortgage professionals in Ontario must be licensed through FSRA. You can verify a broker’s license status through the FSRA public registry.
G
Gross Debt Service Ratio (GDS)
A calculation that measures your annual housing costs (mortgage payments, property taxes, heating, and 50% of condo fees if applicable) as a percentage of your gross annual household income. Most A lenders require a GDS ratio of 39% or below. A Debt Service Calculator can help you understand the numbers
Guarantor
A person who agrees to take responsibility for a mortgage if the primary borrower defaults. Having a guarantor can help borrowers with insufficient income or credit history qualify for a mortgage. The guarantor’s income, credit, and assets are assessed alongside the primary borrower’s.
H
High-Ratio Mortgage
A mortgage where the borrower’s down payment is less than 20% of the purchase price, resulting in a loan-to-value ratio greater than 80%. High-ratio mortgages require mortgage default insurance from CMHC, Sagen, or Canada Guaranty. The insurance premium is added to the mortgage balance.
Home Equity Line of Credit (HELOC)
A revolving line of credit secured against the equity in your home. Unlike a traditional mortgage, a HELOC allows you to borrow, repay, and re-borrow funds up to a set limit. HELOCs typically carry variable interest rates tied to the lender’s prime rate. The maximum combined LTV for a HELOC plus your first mortgage is 80% in Canada.
Home Equity Loan
A lump-sum loan secured against the equity in your property. Unlike a HELOC, a home equity loan provides all the funds at once with a fixed repayment schedule. These loans are commonly used for debt consolidation, renovations, or large one-time expenses.
Home Buyers’ Plan (HBP)
A Government of Canada program that allows first-time home buyers to withdraw up to $60,000 from their RRSPs tax-free to use toward the purchase of a qualifying home. The withdrawn amount must be repaid to the RRSP over a 15-year period beginning the second year after the withdrawal.
I
Insured Mortgage
A mortgage that is backed by mortgage default insurance (from CMHC, Sagen, or Canada Guaranty). All mortgages with a down payment of less than 20% must be insured. Some lenders also insure conventional mortgages (with 20%+ down) at their own cost in exchange for more favourable terms on the secondary market.
Interest Adjustment Date (IAD)
The date from which your regular mortgage payments begin. If you close your mortgage partway through a month, you will owe a one-time interest adjustment covering the days from closing to the end of that month (or to your first regular payment date). This amount is typically collected at closing.
Interest Rate Differential (IRD)
A prepayment penalty formula used by lenders when a borrower breaks a fixed-rate mortgage before the end of the term. The IRD calculates the difference between your existing mortgage rate and the lender’s current rate for the remaining term, applied to the outstanding balance. IRD penalties can be significantly larger than the three-months’-interest penalty.
J
Joint Tenancy
A form of property ownership where two or more people hold equal, undivided interest in a property. If one owner passes away, their share automatically transfers to the surviving owner(s) without going through probate.
L
Land Transfer Tax
A tax imposed by the province (and in Toronto, the city) when real estate changes hands. The amount is based on the purchase price and is paid by the buyer on closing day. First-time home buyers in Ontario may qualify for a full or partial rebate of the provincial land transfer tax.
Lien
A legal claim registered against a property as security for the payment of a debt. Mortgages are the most common type of lien. Other liens can include unpaid property taxes, construction liens from contractors, or court judgments. Liens must generally be cleared before a property can be sold.
Loan-to-Value Ratio (LTV)
The ratio of the mortgage amount to the appraised value of the property, expressed as a percentage. For example, if your home is worth $400,000 and your mortgage balance is $300,000, your LTV is 75%. Most lenders will lend up to 80% LTV for conventional mortgages. Some private lenders may go up to 85%.
Lump-Sum Payment (Prepayment)
An extra one-time payment made against your mortgage principal, over and above your regular payments. Most closed mortgages allow annual lump-sum prepayments of 10–20% of the original mortgage amount without penalty. Lump-sum payments reduce the principal balance and can significantly shorten the amortization.
M
Maturity Date
The date on which the mortgage term expires and the remaining balance must be repaid, renewed with the same lender, or refinanced with a new lender. If you do not renew or refinance before the maturity date, the lender may call the loan due in full.
MIC (Mortgage Investment Corporation)
A private lending company that pools investor capital to fund mortgages, typically for borrowers who do not qualify with traditional lenders. MICs are regulated under the Income Tax Act and commonly fund second mortgages, construction loans, and short-term financing. Interest rates from MICs are higher than bank rates.
Mortgage
A loan secured by real property. The borrower agrees to repay the principal plus interest over a set amortization period, with the property serving as collateral. If the borrower fails to meet the repayment obligations, the lender can enforce the mortgage by selling the property.
Mortgage Broker
See “Broker.”
Mortgage Pre-Approval
See “Approval-in-Principle.”
Mortgage Stress Test
A federal regulation (Guideline B-20) requiring that all borrowers—regardless of down payment size—qualify for their mortgage at a rate higher than the one they will actually pay. The qualifying rate is the greater of the contracted rate plus 2% or the Bank of Canada’s benchmark rate (currently 5.25%). The stress test reduces the maximum mortgage amount most borrowers can obtain.
Mortgage Term
The length of time your current mortgage agreement (interest rate, payment schedule, and conditions) is in effect. Common terms in Canada are 1, 2, 3, 4, and 5 years. At the end of the term, the borrower can renew, refinance, or pay the balance in full. The term is different from the amortization period.
N
Net Worth
The total value of all your assets (property, savings, investments, vehicles) minus all your liabilities (mortgages, loans, credit card balances). Lenders may consider your net worth as part of the overall risk assessment, particularly for larger mortgage requests.
Non-Resident Mortgage
A mortgage issued to a borrower who is not a Canadian citizen or permanent resident. Non-residents typically face stricter qualification requirements, including higher down payments (often 35%+), and may not qualify for CMHC-insured mortgages.
Notice of Sale (Notice of Default)
A formal legal notice sent by the lender to the borrower advising that the mortgage is in default and that the lender intends to exercise its right to sell the property. In Ontario, the borrower has a redemption period (typically 35–40 days) to bring the mortgage current before the sale can proceed.
O
Open Mortgage
A mortgage that allows the borrower to make additional payments or pay off the entire balance at any time without penalty. Open mortgages offer maximum flexibility but carry higher interest rates than closed mortgages. They are ideal for borrowers who expect to sell their property, receive a large sum of money, or refinance in the near term.
Origination Fee
A fee charged by some lenders to cover the administrative costs of processing a new mortgage. Origination fees are more common with private lenders and B lenders. The fee is typically expressed as a percentage of the loan amount (often 1–3%) and may be deducted from the mortgage advance or added to the balance.
P
Porting (Mortgage Portability)
The ability to transfer your existing mortgage—including its rate and terms—from your current property to a new one. Porting allows borrowers to avoid prepayment penalties when selling and buying simultaneously. Not all lenders offer portability, and additional qualification may be required for the new property.
Power of Sale
A legal remedy available to lenders in Ontario and some other Canadian provinces that allows the lender to sell a property after the borrower defaults, without obtaining a court order for full foreclosure. The lender must provide the borrower with a notice period (typically 35 days in Ontario). Any sale proceeds beyond the outstanding mortgage debt and costs are returned to the borrower.
Prepayment Penalty
A fee charged by the lender if you pay off all or part of your mortgage before the end of the term beyond the allowed prepayment privileges. For fixed-rate mortgages, the penalty is typically the greater of three months’ interest or the Interest Rate Differential (IRD). For variable-rate mortgages, it is usually three months’ interest.
Prepayment Privileges
The terms in your mortgage contract that specify how much extra you can pay toward your mortgage each year without triggering a penalty. Common prepayment privileges include increasing your regular payment by 10–20% and making annual lump-sum payments of 10–20% of the original mortgage amount.
Prime Rate
The benchmark interest rate set by individual banks, typically influenced by the Bank of Canada’s overnight target rate. Variable-rate mortgages and HELOCs are priced relative to prime (e.g., prime minus 0.50% or prime plus 0.50%). When the Bank of Canada changes its key interest rate, lenders generally adjust their prime rate accordingly.
Principal
The original amount borrowed on a mortgage, or the remaining balance of the loan excluding accrued interest. Each mortgage payment consists of a principal portion (which reduces the amount owed) and an interest portion (which compensates the lender for lending you the money).
Private Mortgage (Private Lending)
A mortgage funded by an individual investor or a Mortgage Investment Corporation (MIC) rather than a bank or institutional lender. Private mortgages are typically short-term (6–24 months), carry higher interest rates, and are used by borrowers who cannot qualify through traditional channels due to credit issues, income documentation challenges, or urgent timelines.
Property Tax
An annual tax levied by your municipality based on the assessed value of your property. Property taxes fund local services such as roads, schools, and emergency services. Unpaid property taxes can result in a lien on your property and, in extreme cases, a tax sale.
Q
Qualifying Rate
The interest rate used in the mortgage stress test to determine whether a borrower can afford their mortgage payments. Currently the higher of the borrower’s contracted rate plus 2%, or the Bank of Canada’s benchmark rate. This is different from the actual rate you’ll pay.
R
Rate Hold
A guarantee from a lender that a quoted interest rate will be honoured for a specific period (typically 90–120 days), regardless of rate changes in the market. Rate holds are commonly provided as part of a pre-approval. If rates drop during the hold period, some lenders will offer the lower rate.
Refinancing
The process of replacing your existing mortgage with a new one, typically to access a lower interest rate, extend or shorten the amortization, consolidate debts, or access equity in the home. Refinancing a mortgage in Canada before the end of the term may result in a prepayment penalty.
Renewal
The process of renegotiating the terms of your mortgage at the end of the current term. At renewal, you can negotiate a new interest rate, change the term length, switch between fixed and variable rates, or transfer the mortgage to a different lender. You are not obligated to renew with your current lender.
Reverse Mortgage
A financial product available to Canadian homeowners aged 55 and older that allows them to convert up to 55% of their home’s appraised value into tax-free cash without selling the home or making regular mortgage payments. The loan and accumulated interest are repaid when the homeowner sells the home, moves out, or passes away.
S
Second Mortgage
An additional mortgage registered behind the first mortgage on a property. If the property is sold or the borrower defaults, the first mortgage is paid out before the second mortgage. Because of this higher risk, second mortgages carry higher interest rates. They are commonly used to access equity without refinancing the existing first mortgage.
Self-Employed Mortgage
A mortgage designed for borrowers who earn income through their own business rather than as salaried employees. Self-employed borrowers often face additional documentation requirements (such as Notices of Assessment, T1 Generals, and financial statements). Some lenders offer stated-income programs that require less documentation in exchange for higher rates.
Standard Charge Mortgage
A type of mortgage registration where the mortgage is registered for the exact amount borrowed. Unlike a collateral charge, a standard charge mortgage can typically be transferred to a new lender at renewal without incurring discharge and re-registration fees.
Stated Income Program
A mortgage program that allows self-employed borrowers to declare their income on the application without the full traditional documentation (such as T4 slips or employment letters). Lenders offering stated income programs typically charge higher rates and require a larger down payment or more equity to offset the risk.
Stress Test
See “Mortgage Stress Test.”
Subordination
A legal agreement that establishes the priority of one mortgage or lien over another. In a refinancing scenario, the first mortgage lender may agree to subordinate to a new lender—meaning the new lender’s claim takes priority—which is a common arrangement in second mortgage transactions.
Survey (or Real Property Report)
A legal document prepared by a licensed surveyor that shows the property boundaries, the location of buildings and structures on the lot, and any encroachments or easements. Some lenders require a survey as part of the mortgage process, though title insurance has largely replaced this requirement in Ontario.
T
Term
See “Mortgage Term.”
Title
The legal ownership of a property. When you purchase a home, the title is registered in your name at the provincial land registry. A clear title means there are no outstanding claims, liens, or disputes against the property.
Title Insurance
An insurance policy that protects the homeowner and/or lender against losses caused by defects in the title, such as fraud, errors in public records, undisclosed liens, or encroachments. Title insurance is a one-time cost paid at closing and is required by most lenders in Canada.
Title Search
A review of the public land registry records to confirm who owns the property, identify any mortgages, liens, easements, or other encumbrances registered against the title, and verify that the seller has the legal right to transfer ownership.
Total Debt Service Ratio (TDS)
A calculation that measures all of your monthly debt obligations (housing costs plus car payments, credit card minimums, student loans, and any other debts) as a percentage of your gross monthly household income. Most A lenders require a TDS ratio of 44% or below.
U
Underwriting
The process by which a lender evaluates a mortgage application to determine the risk involved in lending to a particular borrower. Underwriters review the borrower’s credit history, income, employment, debts, and the property itself before issuing an approval, denial, or conditional approval.
Uninsured Mortgage
A mortgage that does not carry mortgage default insurance. This applies to most mortgages with a down payment of 20% or more, or mortgages on properties valued above $1 million (which are not eligible for CMHC insurance). Uninsured mortgages may have slightly higher interest rates than insured mortgages.
V
Variable-Rate Mortgage
A mortgage where the interest rate fluctuates based on changes to the lender’s prime rate. With a variable-rate mortgage, the payment may remain fixed (with the principal/interest split changing) or the payment itself may change when prime moves. Variable-rate mortgages typically start with a lower rate than fixed-rate mortgages but carry the risk of rate increases.
Vendor Take-Back Mortgage (VTB)
A financing arrangement where the seller of a property provides a mortgage to the buyer for a portion of the purchase price. VTBs are most common in situations where the buyer cannot qualify for full financing through traditional lenders, or in commercial and rural property transactions.
W-Z
Walk-Away Clause (Condition of Financing)
A clause in a purchase agreement that allows the buyer to cancel the transaction without penalty if they are unable to secure mortgage financing within a specified time period. Including a financing condition protects the buyer’s deposit and is strongly recommended, especially for buyers with non-standard financial situations.
Wraparound Mortgage
A type of financing where a new mortgage “wraps around” the existing first mortgage. The borrower makes a single payment to the new lender, who in turn continues making payments on the original mortgage. Wraparound mortgages are rare in Canada but are occasionally used in creative financing arrangements.
Yield
The annual return on an investment expressed as a percentage. In the context of mortgages, yield refers to the effective return the lender earns on the mortgage, taking into account the interest rate, fees, and any discount or premium at which the mortgage was originated.
Zoning
The municipal regulations that govern how a property can be used (residential, commercial, industrial, agricultural, etc.). Zoning bylaws affect property values and can impact mortgage financing. For example, a lender may decline to finance a property if its current use does not conform to local zoning regulations.
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