Mortgage terms.
Understand the terms that change your payment, flexibility, or borrowing cost.
Amortization
The theoretical period needed to repay the loan in full, for example 25 years. It should not be confused with the term, which is the length of the current agreement. A longer amortization lowers the payment but increases total interest. Example: $400,000 at 4.5%. Over 25 years, the payment is about $2,210 a month and total interest about $263,000. Over 30 years, the payment drops to about $2,015, but total interest climbs to about $325,000. At renewal, the remaining amortization keeps shrinking; an offer that resets it to 25 years eases the payment by pushing back the end of the loan. On an insured loan the maximum is generally 25 years, with recent exceptions for some first-time buyers and new builds; above 20% down, 30 years is common.
Annual rate
A rate expressed on an annual basis. Comparing two loans also requires checking the calculation method, payment frequency, and fees.
Appraisal
A value opinion prepared to meet lender requirements. It does not replace an inspection of the building condition.
Bridge financing
Temporary financing used when a property purchase occurs before expected proceeds from another sale arrive. It requires specific dates and conditions.
Cash flow
Money coming in and going out over a period. A lower monthly payment does not automatically mean a lower total cost.
Closing date
The planned date for signing the deed and completing the transaction. Financing, down payment, and conditions must be ready beforehand.
CMHC premium
The amount charged by the mortgage insurer (CMHC, Sagen, or Canada Guaranty) when the down payment is under 20%. It is calculated as a percentage of the loan, based on the loan-to-value ratio, and is normally added to the principal rather than paid in cash. Example: a $380,000 loan at 95% financing, a premium of about 4%, or $15,200. The loan becomes $395,200 and the monthly payment rises by about $80 over 25 years at 4.5%. In Quebec, the 9% provincial sales tax on the premium is paid at closing and cannot be added to the loan. The actual premium rate depends on the program and the file; a self-employed borrower without two years of history or a rental-property buyer can pay more. The premium is not refunded if you sell.
Collateral charge
Security that may cover several obligations to the lender, depending on the registered deed. Switching or discharging it may require different steps.
Commitment letter
A lender document describing the amount, rate, term, and conditions to meet before funding. It should be read with its schedules and deadlines.
Debt consolidation
Combining several debts into one financing arrangement. Compare the new payment, fees, duration, and total interest, not only the rate.
Default insurance
Insurance required when the down payment is less than 20% of the price. It protects the lender, not you, in case of default, and you pay the premium. In Canada it is offered by CMHC, Sagen, and Canada Guaranty. The premium depends on the loan-to-value ratio: at the time of writing, about 2.8% of the loan at 90% financing and 4% at 95%. Example: a $450,000 house with 5% down, or $22,500. The loan is $427,500, a premium of about $17,100 is added to the loan, and Quebec sales tax on that premium, about $1,540, is paid in cash at closing. An insured loan gives access to the best rates but imposes a maximum price, a capped amortization, and the stress test.
Discharge
The act that removes a lender’s mortgage security from the register. Legal and administrative fees may apply.
Down payment
The amount invested by the buyer upfront, before mortgage financing and transaction costs.
Equity
The difference between your property’s value and the debts secured against it. On paper it is simple; in a refinance, three filters reduce the amount available. The lender uses its own value, often an appraisal, not your estimate. It caps the new loan at 80% of that value. And from the amount obtained, the current balance, the penalty, and the fees come off. Example: a home estimated at $600,000, balance of $350,000. Gross equity is $250,000, but 80% of $600,000 is $480,000; minus the balance, $130,000 of theoretical room remains. If the appraisal comes in at $570,000, the room falls to $106,000, and after a $6,000 penalty and $2,500 of fees, the net cash is about $97,500. That last figure is the one to budget with.
FHSA (First Home Savings Account)
A registered account created in 2023 that combines the advantages of the RRSP and the TFSA for a first home: contributions are tax-deductible, up to $8,000 a year and $40,000 lifetime, and withdrawals for an eligible purchase are not taxed, nor is the accumulated return. Unlike the HBP, nothing has to be repaid. Unused contribution room carries forward, up to an extra $8,000 a year. Example: a couple each contributing $8,000 for three years accumulates $48,000 plus returns, with about $48,000 in tax deductions along the way. For the lender, an FHSA withdrawal is documented like any other down payment: account statement, withdrawal request, deposit. The account must be closed at the latest fifteen years after opening or after the first eligible withdrawal, otherwise the balance can be transferred to an RRSP without penalty.
Financing condition
A clause in an offer that allows time to obtain the intended financing. Its wording and dates should fit the transaction.
Fixed rate
A rate that does not change during the term, so the payment is the same from the first month of the agreement to the last. Stability has two trade-offs: the starting rate is often a little higher than a variable one, and the exit penalty is calculated on the interest rate differential, which can be heavy if rates have fallen since signing. Example: 4.8% fixed for five years. If rates drop to 3.5% two years later, your payment does not move, but breaking the agreement to take advantage can cost several thousand dollars. So compare a fixed rate on three things: the rate, the penalty method, and the prepayment privileges, which let you reduce the balance without charge up to a certain percentage per year.
Gifted down payment
Money received from a relative, most often a parent, to fund all or part of the down payment. The lender accepts it on three conditions: the relationship with the donor is eligible under its program, the gift is not repayable, and the money is traceable. In practice, you need a signed gift letter naming the donor, the amount, and the fact that no repayment is expected, then proof of the transfer into your account. Example: your parents give you $40,000 on April 10. The lender will want the letter, your account statement showing the April 10 deposit, and sometimes the donor’s statement proving the money existed beforehand. A gift that arrives the day before closing, with no letter, slows or blocks the file. On an insured loan the gift must come from an immediate family member; a gift from a friend or a “family loan” is treated differently.
Gross debt service
Gross debt service ratio (GDS): the share of your gross income going to housing costs. The calculation uses the mortgage payment at the qualifying rate, municipal and school taxes, heating, and, for a condo, a portion of the condo fees, often half. Most lenders cap GDS at 39% on an insured loan, sometimes a little higher on a conventional one. Example: gross income of $96,000 a year, or $8,000 a month; 39% gives $3,120 a month for housing. If taxes and heating take $520, $2,600 is left for the qualifying payment. A higher-than-expected tax bill directly reduces the eligible loan, which is why we price the specific property, not an average.
HBP (Home Buyers’ Plan)
A federal program that lets you withdraw funds from your RRSP tax-free to buy a first home, up to $60,000 per person since April 2024, so $120,000 for an eligible couple. You must qualify as a first-time buyer under the program, which includes some people who have not owned a home in recent years, and the amount must be repaid to the RRSP over fifteen years, after a grace period before the first repayment. A missed repayment becomes taxable income for the year. Example: you withdraw $35,000 in March; the funds must have sat in the RRSP for at least 90 days, and the lender will want the RRSP statement, the withdrawal request, and the deposit into your account. The HBP can be combined with the FHSA for the same purchase. The rules evolve; confirm the conditions in force with the CRA before withdrawing.
Home inspection
A review of the property’s visible condition by an inspector. It informs the buyer’s decision but does not set the lender’s value.
Insured and conventional mortgages
A mortgage is insured when the down payment is under 20%: the insurer (CMHC, Sagen, Canada Guaranty) covers the lender in case of default, and you pay the premium. A mortgage is conventional at 20% down and above: no premium, but the lender carries the risk alone and can be more selective. The two worlds do not follow the same rules. An insured loan gives access to the lowest rates but imposes a maximum price, a capped amortization, owner occupancy, and strict income criteria. A conventional loan allows 30-year amortization, non-owner-occupied buildings, and income read more flexibly at some lenders, often at a slightly higher rate. Example: at 19% down, you pay a premium of about 2.8% of the loan; at 20%, nothing. On $400,000 the difference is about $9,000, which can justify waiting one more month of saving.
Interest
The cost paid to the lender for using borrowed money. It depends on the balance, rate, time, and payment frequency.
Loan-to-value
The ratio between the loan amount and the value the lender accepts for the property, expressed as a percentage. It decides almost everything: above 80%, the loan must be insured; at 80% or less, it is conventional with no premium. Example: price of $500,000, down payment of $50,000, loan of $450,000, ratio of 90%, therefore insured. With $100,000 down, the ratio moves to 80% and the premium disappears, a saving of about $12,400 in this case. On a refinance, the maximum ratio is 80%; on a home equity line, the revolving portion is capped at 65% of value. A ratio calculated with an estimated price can change after the appraisal: if the accepted value is lower than the price, the ratio rises and the structure can flip from one side of the threshold to the other.
Maturity date
The date on which the mortgage term ends. Before then, the financing must be renewed, repaid, or replaced.
Mortgage term
The period during which the rate and conditions of the agreement apply, most often one to five years, sometimes up to ten. At the end of the term, the balance is not repaid: you renew, switch, or pay it off. A shorter term renews more often, with the risk and the chance that rates have moved; a longer term buys stability, but leaving early costs a penalty. Example: you expect to sell in three years. A five-year fixed term exposes you to an interest rate differential at the sale; a three-year term, or a portable product, avoids the problem even if the starting rate is slightly higher. The term is chosen on your real timeline, not on the lowest rate in the grid.
Notary fees
Fees and disbursements related to preparing and signing the transaction. The amount depends on the mandate and should be included in closing funds.
Notice of assessment
A tax document confirming assessment of a return and showing assessed income and any balance. A lender may request several years.
Payment frequency
The payment schedule: monthly, biweekly, or weekly, among others. An accelerated frequency can increase the amount repaid each year.
Penalty
The amount charged when a closed mortgage is repaid, refinanced, or switched before the end of the term. On a variable rate, it is generally three months’ interest. On a fixed rate, it is the higher of three months’ interest and the interest rate differential (IRD), which compares your rate with the rate the lender could get today for the remaining term. Example: $350,000 balance, 5% fixed, 30 months left. Three months’ interest comes to about $4,400. If the lender calculates the IRD from a 3% posted rate for the remaining period, the penalty can exceed $17,000. Two lenders calculate the IRD differently, mainly on the comparison rate used; the formula is in your agreement. Always ask for a written amount for a specific date before deciding.
Portability
A clause that lets you carry your current mortgage, with its rate and term, to a new property when you move, instead of repaying it and paying a penalty. It is never automatic. The lender reviews your file and the new property again, imposes a window between the sale and the purchase, often 30 to 120 days, and requires the new loan to be at least equal to the old one. If you need a larger amount, the added portion is financed at today’s rate and the lender calculates a blended rate. Example: a $300,000 balance at 3.2% with two years left, a new home needing $400,000. The $300,000 keeps 3.2%, the added $100,000 takes 4.9%, for a combined rate of about 3.6%. Without portability, an interest rate differential penalty could exceed $10,000.
Preapproval
A preliminary review done by a lender from verified documents (proof of income, down-payment statements, list of debts) and a credit inquiry. It sets a maximum amount, a validity period, usually 90 to 120 days, and often a held rate: if rates rise during the validity window, you keep yours; if they fall, the lower rate has to be requested. It is not a financing guarantee. The lender has not yet seen the property, its value, or your documents as of the offer date. Example: pre-approved for $450,000 in March, you find a condo in June with high condo fees; the lender counts half of them in your ratios and the eligible amount drops. Always keep a financing condition in the offer.
Prequalification
An estimate of what you could borrow, calculated from what you declare: approximate income, debts from memory, an estimated down payment. No document is verified and no credit inquiry is made. It sets a search range; it does not reassure a seller. Example: you report $90,000 of income and $500 of monthly debts; the prequalification points to a target price around $420,000. If your pay stubs show $82,000 and a forgotten card adds $150 a month, the pre-approval will land noticeably lower. A prequalification older than a few months, or done before a job change, a new debt, or a rate increase, is worth little. Redo it before writing an offer.
Principal
The borrowed balance that remains to be repaid, excluding interest. Each payment is split between principal and interest under the contract.
Proof of funds
Documents showing that required funds exist, where they came from, and when they will be available. Statements should trace material deposits and transfers.
Property value
The value assigned to the property for a given review. It may come from an appraisal and differ from asking price, purchase price, or municipal assessment.
Purchase price
The amount agreed with the seller to purchase the property. It is not always the value the lender will use for financing.
Qualification rate
The rate a lender uses to check that you could still pay if rates rose. At the time of writing, it is the higher of your contract rate plus two points and a 5.25% floor. The qualifying payment is therefore higher than the one you will actually make, and it is the one that goes into the debt-service ratios. Example: on a $400,000 loan amortized over 25 years, a 4.5% contract rate gives a payment of about $2,210 a month, but the lender tests at 6.5%, about $2,680. The difference cuts the eligible amount by roughly $60,000 for the same income. The test applies to insured and conventional loans at federally regulated lenders; some alternative lenders apply their own rules.
Refinancing
A change to an existing mortgage structure to fund a project, consolidate debts, or adjust the loan.
Renewal
The moment when a mortgage term ends and must be replaced with new conditions.
Rental income
Rent generated by a property. The amount accepted in the review may differ from gross rent depending on property type and lender criteria.
Self-employed income
Income from a business or self-employed activity. Its review may use tax returns, notices of assessment, and financial statements from several periods.
Stress test
The everyday name for the rule requiring the lender to check your ability to pay at a rate higher than your contract rate: the qualifying rate, the higher of your rate plus two points and 5.25% at the time of writing. The test does not change your actual payment; it reduces the amount you can borrow. Example: with $100,000 of gross income and no debt, a 4.5% contract rate would allow borrowing about $520,000 over 25 years if the test did not exist; tested at 6.5%, the maximum falls to around $430,000. The test applies to insured loans and to conventional loans at banks and most federally regulated lenders. Credit unions and some alternative lenders can apply a different rule, which is why the same file can produce two different amounts.
Title insurance
A one-time policy, paid once at closing, that protects against problems tied to the property title: an error in a deed, an undisclosed servitude, an encroachment, non-compliant work discovered after the purchase, mortgage fraud. There are two kinds: the lender’s policy, often required by the lender and protecting it, and the owner’s policy, optional, which protects you, generally for as long as you own the property. The cost most often falls between $250 and $500 for an ordinary home. Example: after the purchase, the city reports that the shed encroaches on a municipal strip and requires it to be moved; an owner’s policy covers the cost, and sometimes the defence. Title insurance does not replace a current certificate of location or the notary’s title examination; some lenders do, however, accept it in place of a new certificate.
Total debt service
Total debt service ratio (TDS): the share of your gross income going to housing and all your other debts. On top of housing costs, it adds credit card payments (often 3% of the balance, even if you pay more), lines of credit, car and student loans, and support payments where applicable. The usual cap is 44% on an insured loan. Example: income of $8,000 a month; 44% gives $3,520. With a $450 car loan and a card carrying $6,000 counted at $180, $2,890 is left for housing, less than the $3,120 allowed by GDS. So TDS is the binding limit. Paying off the car loan before applying frees $450 a month of capacity, roughly $70,000 more loan.
Transfer duty
A municipal duty payable after buying real estate, often called the welcome tax. It is calculated in brackets on the higher of the price paid and the standardized municipal assessment. For 2026 the base brackets are 0.5% up to $62,900, 1% up to $315,000, and 1.5% above; several municipalities, including Montreal, add higher brackets on the portions above $500,000. Example: a $450,000 purchase in a municipality using the base brackets. The bill is about $315 plus $2,521 plus $2,025, or $4,861. The invoice arrives by mail weeks or months after closing; it does not go through the notary and cannot be financed in the mortgage. Keep that amount in your reserve after the purchase. Exemptions exist, for example on certain transfers between spouses.
Variable rate
A rate that follows the lender’s prime rate, with a spread set in the agreement, for example prime minus 0.8%. Two mechanics exist. With a variable payment, the instalment changes with every rate move. With a fixed payment, the instalment stays the same but the share going to principal varies; if the rate rises enough that the payment no longer covers the interest, you reach the trigger rate and the lender requires an adjustment. Example: on $400,000, a one-point increase adds about $230 a month on a variable payment. The exit penalty is generally three months’ interest, which makes a variable rate cheaper to break. Before choosing, test your budget with a two-point increase, not with today’s rate.