Reference

Mortgage Glossary

The mortgage terms you will hear from lenders, brokers, and lawyers — defined in plain English, with Canadian rules where they apply.

Accelerated bi-weekly payments: Paying half of your monthly payment every two weeks. Because there are 26 bi-weekly periods in a year, you make the equivalent of one extra monthly payment annually, shortening the amortization.
Amortization: The total length of time it would take to pay off your mortgage completely if the rate and payment stayed the same — typically 25 or 30 years in Canada. Not the same as the term. Understanding amortization →
APR (annual percentage rate): The interest rate plus certain borrowing costs expressed as a yearly rate. Useful for comparing offers that have different fees.
Blend-and-extend: An option offered by some lenders to combine your existing rate with a current rate and extend the term, often used to avoid a penalty when you need to borrow more.
Closed mortgage: A mortgage that limits how much you can prepay during the term. Paying more than your prepayment privileges allow, or breaking the mortgage, triggers a penalty. Closed mortgages usually carry lower rates than open ones.
Closing costs: One-time expenses paid when a purchase closes, such as land transfer tax, legal fees, title insurance, home inspection, and adjustments for prepaid property tax. Commonly 1.5% to 4% of the purchase price.
CMHC / mortgage default insurance: Insurance that protects the lender if a borrower defaults. Required in Canada when the down payment is less than 20%. Provided by CMHC and private insurers; the premium is usually added to the mortgage. CMHC insurance guide →
Contract rate: The interest rate you actually pay on your mortgage, as opposed to the qualifying rate used for the stress test.
Down payment: The portion of the purchase price you pay yourself. In Canada the minimum is 5% of the first $500,000 and 10% of the portion above that, and 20% for homes of $1.5 million or more. Minimum down payment calculator →
FHSA (First Home Savings Account): A registered account for first-time buyers. Contributions are tax-deductible and qualifying withdrawals to buy a first home are tax-free. $8,000 annual and $40,000 lifetime limits. FHSA and HBP guide →
Fixed-rate mortgage: A mortgage whose interest rate stays the same for the whole term. In Canada, fixed rates are compounded semi-annually. Fixed vs. variable →
GDS (Gross Debt Service) ratio: Housing costs — mortgage payment, property tax, heating, and half of condo fees — divided by gross monthly income. Insured mortgages allow up to 39%.
High-ratio mortgage: A mortgage with a down payment of less than 20%, which must carry mortgage default insurance.
Home Buyers’ Plan (HBP): A federal program allowing first-time buyers to withdraw up to $60,000 from their RRSP tax-free to buy a home, repayable over 15 years.
Interest rate differential (IRD): A prepayment penalty on fixed-rate mortgages that reflects the difference between your rate and the lender’s current rate for the remaining term. You typically pay the greater of the IRD or three months’ interest.
Land transfer tax: A provincial (and in some cities, municipal) tax paid by the buyer when a property changes hands. First-time buyer rebates are available in several provinces.
Loan-to-value (LTV): The mortgage amount divided by the property value. An 85% LTV means a 15% down payment. LTV determines your insurance premium tier.
Maturity date: The day your mortgage term ends and the remaining balance must be renewed, refinanced, or repaid.
Open mortgage: A mortgage you can pay off in full or in part at any time without penalty, in exchange for a higher interest rate. Often used when a sale is expected soon.
Porting: Transferring your existing mortgage, rate, and term to a new property when you move, avoiding a prepayment penalty. Not all mortgages are portable.
Pre-approval: A lender’s conditional commitment to lend up to a certain amount at a held rate, based on a review of your income, credit, and debts. Final approval depends on the property.
Prepayment privileges: The amount you can pay toward a closed mortgage beyond your regular payments without penalty — for example, an annual lump sum of 15% to 20% of the original balance or a payment increase.
Prime rate: The benchmark rate set by each bank, which moves with the Bank of Canada’s policy rate. Variable mortgage rates are quoted as prime plus or minus a spread.
Qualifying rate: The rate used for the stress test: the greater of your contract rate plus 2 percentage points or 5.25%. Stress test explained →
Refinance: Replacing your mortgage with a new one, often to access home equity or consolidate debt. Mid-term refinancing can trigger a prepayment penalty, and refinances require requalification.
Renewal: Signing a new term for your remaining balance when your current term matures. The best time to compare lenders, because switching at maturity carries no penalty. Renewal checklist →
Stress test: The federal requirement that borrowers qualify using a higher rate than their contract rate, to ensure they could handle future rate increases. Affordability & stress test calculator →
TDS (Total Debt Service) ratio: GDS housing costs plus all other debt payments, divided by gross monthly income. Insured mortgages allow up to 44%.
Term: The length of your current mortgage contract — commonly 1 to 5 years — during which your rate and conditions are set. Distinct from the amortization.
Variable-rate mortgage: A mortgage whose rate moves with the lender’s prime rate. Some have fixed payments (where the interest/principal split changes) and some have adjustable payments.