Mortgage Glossary Canada: A to Z of Mortgage Terms

This glossary defines the mortgage terms you’re likely to meet in Canada, from research through closing day and renewal. Each definition is kept short and links to the guide that covers the subject in full. For how the pieces fit together, see how Canadian mortgages work; for every product side by side, see the types of mortgages in Canada; and for the full list of guides, the mortgage types and features hub.

A

Accelerated payments: A weekly or biweekly schedule where each payment is a quarter or half of the monthly payment, which adds up to about one extra monthly payment a year and shortens the amortization. See mortgage payment frequency.

Adjustable-rate mortgage (ARM): A variable-rate mortgage whose payment is recalculated each time the lender’s prime rate changes, so it always stays on schedule. See adjustable-rate vs variable-rate mortgages.

Amortization: The total time the mortgage would take to repay in full at the current payment, commonly 25 years. Who can get a longer 30-year amortization on an insured mortgage is covered separately; the difference from the term is in term vs amortization.

Amortization schedule: A table showing how each payment splits between interest and principal over the life of the mortgage. See the mortgage amortization calculator.

Appraisal: A professional estimate of a property’s market value, usually ordered by the lender to confirm the home supports the loan. See home appraisals.

APR (annual percentage rate): The cost of borrowing, including required fees, expressed as an annual rate; it equals the interest rate when interest is the only cost. See APR vs interest rate.

Assumable mortgage: A mortgage a buyer can take over from the seller, with the lender’s approval, keeping its rate and term. See assumable mortgages.

B

B-lender: An alternative lender that approves borrowers outside the banks’ criteria, at higher rates. See the B-lender mortgage guide.

Basis point: One hundredth of a percentage point, so a move from 4.50% to 4.75% is 25 basis points. See basis points explained.

Blend and extend: Renewing early by blending your current rate with a new one over a longer term, instead of paying a penalty to break. See blend and extend.

Blended mortgage: Borrowing more mid-term at a rate blended from your existing rate and the current rate, keeping the original maturity date. See blended mortgages.

Bridge financing: A short-term loan that lets you use the equity in the home you’re selling before that sale closes. See how bridge financing works and the bridge financing calculator.

Broker: See Mortgage broker.

C

Canada Guaranty: One of the three mortgage default insurers in Canada, alongside CMHC and Sagen. See what CMHC insurance is.

Cash-back mortgage: A mortgage where the lender pays you a lump sum at closing in exchange for a higher rate, usually repayable if you break the mortgage early. See cash-back mortgages.

CMHC (Canada Mortgage and Housing Corporation): The federal housing agency and the largest mortgage default insurer. Its insurance rules are in the CMHC mortgage rules.

Closed mortgage: A mortgage that limits extra payments to the prepayment privileges in the contract and charges a penalty to pay it off before the term ends. See open vs closed.

Closing costs: The costs of buying beyond the price and down payment, such as land transfer tax, legal fees and adjustments. See the closing cost calculator.

Closing day: The day ownership transfers, the funds change hands and the mortgage is registered. See what to expect on closing day.

Collateral charge mortgage: A mortgage registered for more than the amount borrowed, so you can borrow more later without re-registering; moving it to another lender means discharging it and registering a new one. See collateral vs conventional charge.

Conventional mortgage: A mortgage with a down payment of 20% or more, so default insurance isn’t required. See conventional mortgages.

Convertible mortgage: A variable-rate mortgage that can be switched to a fixed rate during the term. See convertible mortgages.

Co-signer: A person who signs the mortgage with the borrower and is equally responsible for repaying it. See co-signing a mortgage.

Credit score: A three-digit rating of your credit history from Equifax or TransUnion. For a CMHC-insured purchase, at least one borrower or guarantor needs a credit score of 600 or more; CMHC may use other ways to judge creditworthiness for a borrower with no credit history. See credit scores explained and the credit score needed for a mortgage.

D

Debt service ratios: The two ratios lenders use to measure what you can carry: GDS and TDS. See GDS and TDS explained.

Default: Failing to meet the mortgage contract, usually by missing payments; a prolonged default can lead to a court foreclosure or a power of sale. See the foreclosure and power of sale process.

Deposit: Money paid when an offer is accepted and held in trust until closing, separate from the down payment. See deposit vs down payment.

Discharge: Removing the mortgage from the title once it’s paid off or moved to another lender. See the mortgage discharge process.

Down payment: The part of the price you pay yourself rather than borrow. The minimum down payment is 5% of the first $500,000 and 10% of the rest for homes under $1.5 million, and 20% at $1.5 million or more. See the down payment calculator.

E

Equity: Your home’s market value minus what you owe on it; a $700,000 home with a $400,000 mortgage has $300,000 of equity . See the home value estimator.

F

FHSA (First Home Savings Account): A registered account for first-time buyers with $8,000 of contribution room a year, up to $40,000 in total; contributions are deductible and a qualifying withdrawal is tax-free. See the FHSA guides.

First-time home buyer: The definition depends on the program, but it generally means you haven’t lived in a home you or your spouse owned in the current year or a set number of years before it. See first-time home buyer programs.

Fixed-rate mortgage: A mortgage whose rate is locked for the term, so the payment doesn’t change. See fixed vs variable.

Foreclosure: A court process in which the lender takes the property, or has it sold, after a default; which process applies depends on the province. See the foreclosure and power of sale process.

G

GDS (gross debt service) ratio: Your housing costs (mortgage payment, property tax, heating and half of any condo fees) as a share of gross income. For an insured mortgage, CMHC caps your housing costs at 39% of gross income (GDS) and your housing costs plus other debt payments at 44% (TDS); lenders set their own limits for uninsured mortgages. See GDS and TDS explained.

Guarantor: A person who promises to repay the mortgage if you don’t, without necessarily being on the title. See co-signing a mortgage.

H

HBP (Home Buyers’ Plan): A program that lets a first-time buyer withdraw up to $60,000 from an RRSP toward a home, repaid over 15 years. See the Home Buyers’ Plan guide.

HELOC (home equity line of credit): A revolving credit line secured by your home, usually with interest-only minimum payments. The revolving (non-amortizing) HELOC part can't exceed 65% of the home's value at a federally regulated lender. See mortgage vs home equity loan vs HELOC.

High-ratio mortgage: A mortgage with less than 20% down, which needs default insurance. See insured vs uninsured mortgages.

Hybrid mortgage: A mortgage split into fixed and variable portions, each with its own rate. See types of mortgages.

I

Insured mortgage: A mortgage with default insurance, which protects the lender, not you; insured mortgages often get lower rates. See insured vs uninsured mortgages.

Interest adjustment date (IAD): The date from which regular payments are counted; interest from closing to that date is charged separately. See the interest adjustment date.

Interest rate differential (IRD): A penalty method for breaking a fixed-rate mortgage, based on the gap between your rate and a comparison rate for the time left. See how mortgage penalties are calculated.

J

Joint tenancy: Co-ownership in which, when one owner dies, their share passes to the surviving owners. See joint tenancy vs tenants in common.

L

Land transfer tax: A provincial (and in some cities, municipal) tax paid when a property changes hands; first-time buyers may get a rebate. See the land transfer tax calculator.

LTV (loan-to-value) ratio: The mortgage divided by the property’s value; above 80%, a mortgage needs default insurance. See the loan-to-value calculator.

M

Maturity date: The day the current term ends, when you renew, refinance or pay off the balance. See the mortgage renewal guide.

MIC (mortgage investment corporation): A company that pools investors’ money to lend as mortgages, usually at higher rates to borrowers the banks decline. See types of mortgage lenders.

Mortgage-backed securities: Pools of insured mortgages sold to investors with a CMHC guarantee, which lowers lenders’ funding costs. See mortgage-backed securities.

Mortgage broker: A licensed intermediary who shops your mortgage to several lenders and is usually paid by the lender. See what a mortgage broker does.

Mortgage default insurance: Insurance from CMHC, Sagen or Canada Guaranty that protects the lender if you default, required with less than 20% down; the premium is usually added to the mortgage. See what CMHC insurance is and the CMHC premium calculator.

Mortgagor and mortgagee: The mortgagor is the borrower who gives the mortgage; the mortgagee is the lender who receives it. See mortgagor vs mortgagee.

N

Negative amortization: When the payment doesn’t cover the interest and the unpaid interest is added to the balance, so it grows. See negative amortization.

Non-recourse mortgage: A mortgage where, after a default, the lender can recover only from the property and not from your other assets; Alberta limits lenders’ claims on many conventional mortgages. See recourse vs non-recourse mortgages.

O

Open mortgage: A mortgage you can pay off at any time without a penalty, at a higher rate than a closed one. See open vs closed.

OSFI (Office of the Superintendent of Financial Institutions): The federal regulator of banks, which sets the stress test for uninsured mortgages under Guideline B-20.

P

Portability: Moving your mortgage, with its rate and term, to a new home when you move. See porting a mortgage.

Power of sale: A process, used in Ontario and some other provinces, in which the lender sells the property after a default without taking ownership. See the foreclosure and power of sale process.

Pre-approval: A lender’s conditional statement of how much it would lend and at what rate, often with a rate hold; it isn’t a final approval. See mortgage pre-approval.

Prepayment privilege: The extra you can pay each year, as a lump sum or a higher payment, without a penalty; the limits vary by lender. See prepayment privileges.

Prime rate: The base rate each bank sets, which moves with the Bank of Canada’s policy rate; variable mortgage rates are quoted as prime plus or minus a spread. See the prime rate explained.

Principal: The amount borrowed and still owed, as distinct from interest.

Purchase plus improvements: A mortgage that adds the cost of renovations to the purchase loan. See purchase plus improvements.

Q

Qualifying rate: The rate a lender uses to test whether you can afford the mortgage. Lenders check that you could afford the payments at the greater of your contract rate plus 2% or 5.25%, a floor set by OSFI for uninsured mortgages and by the federal government's mortgage insurance rules (the Minister of Finance's Eligible Mortgage Loan Regulations) for insured ones. See the mortgage stress test.

R

Rate hold: A lender’s promise to keep a rate available for a set period while you shop or wait to close. See rate locks explained.

Readvanceable mortgage: A mortgage combined with a credit line whose limit grows as you repay principal. See readvanceable mortgages.

Recasting: Recalculating the payment after a large lump-sum payment, keeping the same rate and term. See mortgage recasting.

Recourse mortgage: A mortgage where the lender can pursue you for any shortfall after selling the property; this is the usual case in Canada. See recourse vs non-recourse mortgages.

Refinancing: Replacing your mortgage with a new one, often for a larger amount or a different rate, with a new qualification. See when to refinance.

Renewal: Signing a new term at the end of the current one, with the same lender or a new one. See the mortgage renewal guide.

Reverse mortgage: A loan for older homeowners against their home equity with no regular payments; it’s repaid when the home is sold. See reverse mortgages.

S

Sagen: One of the three mortgage default insurers in Canada, formerly Genworth Financial Canada. See what CMHC insurance is.

Semi-annual compounding: The way Canadian fixed mortgage rates are quoted, with interest compounded twice a year. See semi-annual compounding.

Smith Manoeuvre: A strategy that uses a readvanceable mortgage to borrow back repaid principal and invest it, aiming to make the interest tax-deductible. See the Smith Manoeuvre.

Statement of adjustments: The closing document that settles amounts between buyer and seller, such as prepaid property tax. See the statement of adjustments.

Stress test: The federal requirement to qualify at a rate higher than the one you’ll pay. See the mortgage stress test.

T

TDS (total debt service) ratio: Your housing costs plus all other debt payments as a share of gross income; the insured limit is under GDS. See GDS and TDS explained.

Tenants in common: Co-ownership in which each owner holds a set share that can be sold or left by will separately. See joint tenancy vs tenants in common.

Term: How long your current rate and contract last, commonly one to five years and sometimes longer. See term vs amortization and 3-year vs 5-year terms.

Title insurance: Insurance against defects in a property’s title, such as fraud, liens or encroachments. See title insurance.

Trigger rate: At the trigger rate the payment only covers interest, and none of it pays down the principal. It applies to a variable-rate mortgage whose payment isn't adjusted automatically when the rate changes. See the trigger rate explained.

Trigger point: The trigger point is different: it's reached when your balance grows past the lender's limit relative to your home's purchase value, and then you must adjust your payments, make a prepayment or pay off the balance.

U

Underwriting: The lender’s review of your income, credit, down payment and property before it approves the mortgage. See the mortgage underwriting process.

Uninsured mortgage: A mortgage without default insurance, which needs at least 20% down. See insured vs uninsured mortgages.

V

Variable-rate mortgage: A mortgage whose rate moves with the lender’s prime rate; depending on the lender, either the payment or the principal share changes. See fixed vs variable.

Vendor take-back (VTB) mortgage: A loan from the seller to the buyer for part of the price. See vendor take-back mortgages.