Mortgage Glossary
Key terms and concepts you'll encounter during the mortgage process.
A-C
Adjustable Rate Mortgage
A mortgage where both the interest rate and your payment amount change when the prime rate moves. Unlike a standard variable-rate mortgage (where the payment may stay the same while the interest portion shifts), an adjustable rate mortgage means your actual monthly payment goes up or down with rate changes.
Agreement of Purchase and Sale
The legally binding contract between a buyer and seller that outlines the terms of a real estate transaction, including the purchase price, deposit amount, closing date, and any conditions (such as financing or home inspection). In Ontario, your real estate lawyer reviews this agreement before closing.
Alternative Lender
A federally or provincially regulated lender that is not one of Canada's Big Six banks. Alternative lenders — also called B lenders — offer more flexible qualification criteria for borrowers who may not meet traditional bank requirements due to credit history, self-employment income, or unique property types. They typically charge slightly higher rates in exchange for this flexibility.
Annual Percentage Rate (APR)
The total annual cost of borrowing expressed as a percentage, including the interest rate plus any additional fees such as mortgage insurance premiums, appraisal fees, and certain closing costs. The APR gives you a more complete picture of your true borrowing cost than the interest rate alone.
Amortization
The time period over which you repay your mortgage, typically ranging from 15 to 30 years in Canada. A longer amortization means lower monthly payments but more interest paid overall; a shorter amortization means higher payments but less interest.
Appraisal
A professional assessment of a property's market value, ordered by the lender to ensure the home is worth at least the purchase price. If the appraisal comes in low, you may need to increase your down payment or renegotiate the price.
Assumable Mortgage
A mortgage that can be transferred from the seller to the buyer when a property is sold. The buyer takes over the existing mortgage at its current rate and terms, which can be advantageous if the seller locked in at a lower rate than what is currently available.
Blend and Extend
A mortgage renewal strategy where you combine your existing mortgage balance and interest rate with a new loan at current rates to create a blended rate. This avoids breaking your mortgage early but doesn't give you the full benefit of today's rates.
Blended Payments
A mortgage payment structure where each payment includes both principal and interest, with the ratio shifting over time. Early in your mortgage, a larger portion goes to interest; later, more goes to principal. This is the standard payment structure for most Canadian mortgages.
Bridge Loan
A short-term loan that allows you to purchase a new home before selling your current one. You typically repay the bridge loan once your old home sells, using those proceeds as a down payment on the new property.
Certification of Location
A document prepared by a licensed surveyor that shows the exact size and position of a property, including all buildings, additions, fences, and driveways. Lenders or lawyers may require one before closing to confirm nothing encroaches on neighbouring land or violates local bylaws.
Certification of Search
A document listing every transaction registered against a property's title — mortgages, liens, easements, and past sales. Your lawyer orders a title search before closing to make sure there are no surprises that could affect your ownership.
CMHC Insurance
Mortgage default insurance provided by Canada Mortgage and Housing Corporation (or competitors like Sagen and Canada Guaranty) when your down payment is less than 20%. The insurance premium is added to your mortgage balance and protects the lender if you default.
Closed Mortgage
A mortgage with strict rules about early repayment. You cannot pay it off early or make lump-sum payments without paying a prepayment penalty, usually calculated as either interest rate differential (IRD) or three months' interest.
Closing Costs
The fees and expenses you pay on top of the purchase price when your home sale finalizes. In Ontario, closing costs typically include land transfer tax, legal fees, title insurance, home inspection, appraisal fees, and adjustments for property taxes or utilities. Budget 1.5% to 4% of the purchase price.
Collateral Mortgage
A mortgage registered against your property in a way that allows the lender to lend you additional money (up to the registered amount) without changing the mortgage registration. Common in Ontario, it simplifies refinancing but limits your ability to switch lenders.
Commitment Letter
A formal document from a lender confirming your mortgage approval, including the approved amount, interest rate, term, and any conditions you must meet before closing. Once you sign the commitment letter, the lender is obligated to fund the mortgage provided all conditions are satisfied.
Closing Date
The date when the property sale is finalized, ownership is legally transferred to the buyer, and the mortgage funds are disbursed to the seller. In Ontario, your lawyer handles the closing process, which includes registering the title, transferring funds, and providing you with the keys.
Conditional Offer
An offer to purchase a property that includes one or more conditions that must be met before the deal becomes firm. Common conditions include securing mortgage financing, passing a home inspection, or selling your current home by a specific date. If a condition is not met by the deadline, the buyer can walk away without penalty.
Conditions of Sale
Clauses written into an Agreement of Purchase and Sale that must be satisfied before the transaction becomes firm. Common conditions include financing approval, a satisfactory home inspection, and the sale of the buyer's existing property. Once all conditions are met (or waived), the sale becomes unconditional.
Co-Signer
A person who signs the mortgage alongside the primary borrower and agrees to be equally responsible for repayment. A co-signer's income and credit are used to help the primary borrower qualify, but the co-signer does not have ownership of the property. This differs from a co-borrower, who shares both the mortgage obligation and property ownership.
Condominium
A type of property ownership where you own the interior space of your unit and share ownership of common areas (hallways, elevators, parking, grounds) with other unit owners through a condominium corporation. You pay monthly maintenance fees that cover building upkeep, insurance, and reserve funds. Lenders factor condo fees into your debt service ratios when qualifying you for a mortgage.
Conventional Mortgage
A mortgage where the down payment is 20% or more of the purchase price. Conventional mortgages do not require mortgage default insurance and typically offer better rates than insured mortgages.
Credit Score
A three-digit number (typically 300-900 in Canada) that represents your creditworthiness based on your payment history, debt levels, and credit inquiries. Most lenders require a credit score of at least 650 to 680 to qualify for a mortgage.
Critical Illness Insurance
An optional insurance product that pays out your remaining mortgage balance if you are diagnosed with a serious illness covered under the policy (such as cancer, heart attack, or stroke). Unlike mortgage life insurance, critical illness insurance pays while you are alive, giving you financial relief when you need it most.
D-G
Debt Service Ratio
Lenders use two ratios to determine how much you can borrow: Gross Debt Service (GDS) ratio limits your housing costs to about 32% of gross income, and Total Debt Service (TDS) ratio limits all debt (housing plus car loans, credit cards, etc.) to about 44% of gross income.
Default
When you fail to make your mortgage payments on time. After several missed payments, the lender can begin foreclosure proceedings to take back the property and sell it to recover what you owe.
Deed
A legal document that transfers ownership of a property from the seller to the buyer. Your real estate lawyer prepares the deed and registers it against the property's title at closing as official proof of ownership.
Deposit
The money you put down when your offer to purchase is accepted, usually held in trust by the seller's real estate brokerage or lawyer until closing day. The deposit goes toward your down payment and shows the seller you are serious. In Ontario, deposits typically range from 1% to 5% of the purchase price.
Discharge
The legal process of removing a mortgage from the title of your property once it has been fully paid off. Your lawyer or lender files the discharge with the land registry office. A discharge fee (typically $200-$400) is charged by the lender.
Down Payment
The cash you contribute toward the purchase price of a home, expressed as a percentage. In Canada, you can put down as little as 5% but will pay mortgage insurance. At 20% down, no insurance is required.
Encumbrance
Any claim, lien, or restriction registered against a property's title that may affect its value or your ability to sell. Common encumbrances include mortgages, easements, unpaid property taxes, and construction liens. A title search reveals encumbrances before closing.
Equity
The portion of your home that you truly own, calculated as the current market value minus what you still owe on your mortgage. As you pay down your mortgage, your equity increases.
Estoppel Agreement
A document that provides a snapshot of a condominium corporation's financial health, insurance coverage, and any pending legal actions or special assessments. Buyers purchasing a condo should review the estoppel certificate (also called a status certificate in Ontario) before closing to make sure the building is well-managed and there are no hidden costs.
Extended Amortization
An amortization period longer than the standard 25 years, typically 30 years. Extended amortizations lower your monthly payment but increase the total interest paid over the life of the mortgage. In Canada, extended amortizations are available for some insured mortgages for first-time buyers purchasing new builds.
First Home Savings Account
A federal tax-advantaged account that allows first-time buyers to contribute up to $8,000 per year (lifetime limit $40,000). Contributions are tax-deductible, and withdrawals for a first home are tax-free—no repayment required.
Fixed Rate
A mortgage interest rate that remains the same throughout your term. Your payment is predictable and does not change, regardless of what happens to market interest rates. Fixed rates protect you from rate increases.
First Mortgage
The primary mortgage registered against a property, which takes priority over all other mortgages or liens. In the event of a default and sale of the property, the first mortgage lender is paid before any second mortgage or other creditors. Most homeowners have a first mortgage as their only mortgage.
Floating Rate
A temporary interest rate offered during a specific period (usually between offer and closing) where the rate floats with market changes. Your actual mortgage rate is set when you close on your home.
Foreclosure
The legal process by which a lender takes possession of a property when the borrower repeatedly fails to make mortgage payments. The lender then sells the property to recover what is owed.
GDS Ratio
Gross Debt Service ratio. Lenders typically cap your housing costs (mortgage payment, property tax, utilities, and insurance) at approximately 32% of your gross monthly income to determine qualification.
Guarantor
A person who guarantees repayment of a mortgage if the borrower defaults, without being on the property title. Unlike a co-signer, a guarantor's obligation is secondary — the lender must first attempt to collect from the borrower before turning to the guarantor. Parents often act as guarantors for first-time buyers.
H-M
High-Ratio Mortgage
A mortgage where the down payment is less than 20%, requiring mortgage default insurance. Called 'high-ratio' because the loan-to-value ratio is higher, increasing the lender's risk.
Home Equity Line of Credit
A flexible credit product secured against the equity in your home, allowing you to borrow and repay multiple times like a credit card. Interest rates are typically lower than unsecured credit because your home is collateral.
Home Inspection
A detailed examination of a property's condition by a qualified inspector before closing. The inspection report identifies structural issues, mechanical problems, and safety concerns that may affect the home's value or your decision to buy.
Home Insurance (Fire & Property)
Insurance that protects your home and belongings against damage or loss from fire, theft, weather events, and liability claims. Your mortgage lender requires proof of home insurance before advancing any funds at closing. Policies vary widely, so compare coverage limits, deductibles, and exclusions before choosing a provider.
Insurable Mortgage
A mortgage with a down payment of 20% or more that still meets the criteria for mortgage default insurance, even though insurance is not required. Because the lender can insure it on the back end, insurable mortgages often qualify for lower interest rates than uninsurable ones.
Insured Mortgage
A mortgage where the borrower has paid for mortgage default insurance because the down payment is less than 20%. The insurance premium is added to the mortgage balance. Insured mortgages typically receive the lowest available interest rates because the lender's risk is covered by the insurer.
Interest
The cost of borrowing money, expressed as an annual percentage rate. Interest is what you pay the lender in exchange for using their funds. In the early years of a mortgage, the majority of each payment goes toward interest rather than paying down the principal.
Interest Adjustment Date
The date from which your regular mortgage payments begin to cover both principal and interest. If your closing date falls between regular payment dates, you pay interest-only for those interim days (from closing to the interest adjustment date). This one-time cost is typically collected at closing.
Interest-Only Mortgage
A mortgage where you pay only the interest for a set period (usually one to five years) without paying down any principal. Your payments are lower during this period, but the mortgage balance does not decrease. Interest-only mortgages are less common in Canada and are typically offered by alternative or private lenders.
Interest Rate Differential
A prepayment penalty method where you pay the difference between your mortgage rate and the lender's current rate for the remaining term, multiplied by the outstanding balance. IRD is typically higher than three months' interest for fixed-rate mortgages.
Land Transfer Tax
A provincial tax in Ontario (and some other provinces) paid when you purchase a property. In Toronto, both provincial and municipal land transfer taxes apply. First-time buyers receive a partial rebate up to $4,000 provincially and up to $4,475 municipally.
Lender
The financial institution (bank, credit union, or private lender) that provides the mortgage funds. Lenders set rates, terms, and qualification requirements, and they hold the mortgage until it is fully repaid or renewed.
Loan-to-Value Ratio (LTV)
The mortgage amount expressed as a percentage of the property's appraised value. For example, a $400,000 mortgage on a $500,000 home is an 80% LTV. In Canada, an LTV above 80% requires mortgage default insurance.
Lump-Sum Payment
A one-time extra payment applied directly to your mortgage principal, reducing the total interest you pay over the life of the loan. Most closed mortgages allow annual lump-sum payments of 10% to 20% of the original mortgage amount without penalty.
Maturity Date
The date when your mortgage term ends and you must renew the mortgage with your current lender or switch to a new lender. On maturity, the interest rate, term length, and payment amount are renegotiated.
Mortgage Agent
A licensed professional who represents borrowers in Ontario, helping them find the best mortgage product and lender for their situation. Patrick Damiano at Pathway Mortgage is a mortgage agent under brokerage Get A Better Mortgage (FSRA License #10874).
Monoline Lender
A lender that specializes exclusively in mortgages and does not offer other banking products like chequing accounts or credit cards. Monoline lenders (such as First National, MCAP, and CMLS) often offer competitive rates because they have lower overhead and are only available through mortgage agents.
Mortgage Brokerage
A licensed company that employs mortgage agents and brokers. The brokerage coordinates with multiple lenders and handles regulatory compliance. Pathway Mortgage operates under the brokerage Get A Better Mortgage.
Mortgagee
The lender of a mortgage. The mortgagee provides the funds and holds a legal interest in the property as security until the mortgage is fully repaid.
Mortgagor
The borrower of a mortgage. The mortgagor receives the funds and is responsible for making all mortgage payments according to the terms of the agreement.
N-R
Mortgage Default Insurance
Insurance required when your down payment is less than 20%. It protects the lender if you default, allowing them to recover the shortfall. The premium (typically 2.8% to 4% of the mortgage) is added to your loan balance.
Mortgage Life Insurance
Insurance that pays off some or all of your remaining mortgage balance if you pass away. The payout goes directly to the lender, not your family. Many financial advisors recommend comparing mortgage life insurance with a standard term life insurance policy, which gives your beneficiaries more flexibility in how they use the funds.
Mortgage Monitoring
A service where a mortgage agent tracks your mortgage and notifies you (typically 120 days before maturity) so you have time to shop for renewal rates. This helps ensure you don't miss the window to switch lenders and secure a better rate.
Mortgage Pre-Approval
A commitment from a lender stating the maximum mortgage amount they are willing to lend you at a specific rate, valid for a set period (usually 120 days). Pre-approval is based on your credit, income, and debts and gives you a clear buying budget.
Mortgage Term
The duration of your current mortgage contract, typically 1 to 5 years in Canada (sometimes up to 10 years). At the end of the term, your mortgage matures and must be renewed or renegotiated.
Negative Amortization
A situation where your mortgage balance increases instead of decreasing because your payments are not large enough to cover the interest owed. This can happen with some variable-rate mortgages when interest rates rise significantly but your payment amount stays the same.
Offer to Purchase
A formal, legally binding document offering a specific price for a property. The offer outlines the purchase price, closing date, deposit amount, mortgage details, and any conditions. Once accepted by the seller, it becomes the Agreement of Purchase and Sale — the contract that governs the entire transaction.
Open Mortgage
A mortgage that allows you to pay it off early without penalty. Open mortgages typically have higher interest rates than closed mortgages but offer maximum flexibility if you expect to receive a large sum or want to refinance.
Penalty (Prepayment Penalty)
A fee charged by the lender if you pay off your mortgage early, make payments above your prepayment privilege, or break your mortgage before the term ends. 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.
Payment Frequency
How often you make mortgage payments. Common options include monthly (12 payments per year), semi-monthly (24 payments), bi-weekly (26 payments), or accelerated bi-weekly (26 payments calculated differently). Accelerated bi-weekly payments are equivalent to making one extra monthly payment per year, which can shave years off your amortization.
P.I.T.
An abbreviation for Principal, Interest, and Taxes — the three main components of your regular mortgage payment when your lender collects property tax on your behalf. Some lenders also include heating costs, making it P.I.T.H.
Porting
The process of transferring your current mortgage to a new property when you sell your home and buy another. Porting allows you to keep your existing rate and terms if you move within a certain timeframe, avoiding a prepayment penalty.
Pre-Payment Privileges
Options built into your mortgage that allow extra payments toward principal without penalty. Common privileges include doubling your regular payment, making annual lump-sum payments, or increasing your regular payment by a percentage each year.
Power of Sale
A legal remedy available to lenders in Ontario (and some other provinces) that allows them to sell a property to recover money owed when a borrower defaults on the mortgage. Unlike foreclosure, the lender does not take ownership of the property — they sell it on behalf of the borrower and return any surplus proceeds.
Prime Rate
The interest rate that Canadian banks charge their most creditworthy customers. The Bank of Canada's policy rate (set at eight announcement dates per year) directly influences the prime rate. Variable-rate mortgages are typically priced as prime rate plus or minus a spread.
Principal
The original amount borrowed (excluding interest). As you make payments, you gradually reduce the principal. Early in your mortgage, most of your payment goes to interest; later, more goes to principal.
Private Lender
A non-institutional lender (individual, investment group, or alternative lending company) that provides mortgages outside the traditional banking system. Private lenders typically charge higher rates but are more flexible on qualification criteria.
Property Tax
An annual tax levied by your municipality based on the assessed value of your property. Lenders factor property taxes into your GDS ratio when qualifying you for a mortgage. Many lenders collect property tax as part of your monthly mortgage payment and remit it to the municipality on your behalf.
Rate Hold
A guarantee from the lender that locks in your approved mortgage rate for a set period (typically 90 to 120 days) while you shop for a home. If rates go up, you keep the lower held rate. If rates drop, most lenders will offer you the lower rate instead.
Refinancing
The process of breaking your existing mortgage early and replacing it with a new mortgage, typically to access equity, lower your rate, or change the loan terms. You may pay a prepayment penalty to break the original mortgage.
Renewal
The process of renewing your mortgage with the same lender or switching to a new lender when your current term ends. You negotiate a new rate and term without paying a prepayment penalty, as long as you complete the renewal within the allowed period.
Restricted Mortgage
A mortgage with limitations that go beyond a standard closed mortgage. Restrictions may include penalties for switching lenders at renewal, limits on refinancing, or a bona fide sale clause that only allows penalty-free repayment if the property is sold. Restricted mortgages sometimes offer lower rates but less flexibility.
S-Z
Second Mortgage
An additional mortgage registered on your property after the first mortgage. Second mortgages have higher interest rates and are riskier for the lender because they are paid after the first mortgage if the property is sold or foreclosed.
Stress Test
A qualification requirement in Canada where lenders approve you based on a higher interest rate (typically 2% above your contract rate or a regulatory minimum, currently 5.25%) to ensure you can afford the mortgage even if rates rise. All mortgages must pass this test.
Survey (Real Property Report)
A legal document prepared by a licensed surveyor that shows the boundaries of a property, the location of structures, and any encroachments. Some lenders and lawyers require a survey before closing to verify there are no boundary or zoning issues.
Switch / Transfer
The process of moving your mortgage from one lender to another at renewal without refinancing. A switch allows you to take advantage of better rates or terms without paying a prepayment penalty, and the new lender often covers the legal and appraisal costs.
TDS Ratio
Total Debt Service ratio. Lenders typically cap your total debt payments (mortgage, car loans, credit cards, student loans, etc.) at approximately 44% of your gross monthly income to determine how much you can borrow.
Title
The legal right of ownership of a property. Title is registered with the provincial land registry and serves as official proof of who owns the property. Your lawyer conducts a title search before closing to confirm the seller has clear title and the right to sell.
Title Insurance
Insurance that protects you and the lender against losses due to title defects (issues with ownership history), unpaid taxes, liens, or other problems that affect your ownership of the property. It is a one-time cost paid at closing and provides lifetime coverage.
Trigger Point
The point at which your outstanding mortgage balance reaches the original principal amount on a variable-rate mortgage with fixed payments. When rising interest rates cause none of your payment to go toward principal, your lender may require you to increase your payment or make a lump-sum payment to bring the balance back in line.
Trigger Rate
The interest rate at which your fixed variable-rate mortgage payment no longer covers the interest portion of your mortgage. When rates rise past your trigger rate, your regular payment is not enough to cover even the interest, causing your mortgage balance to grow instead of shrink. Your lender will typically notify you and require a payment increase.
Underwriting
The process by which a lender evaluates your mortgage application to assess the risk of lending to you. Underwriters review your credit history, income, employment, debts, and the property itself to decide whether to approve the mortgage and under what conditions.
Uninsurable Mortgage
A mortgage that does not qualify for mortgage default insurance, typically because the amortization exceeds 25 years, the purchase price is over $1 million, or the property is not owner-occupied. Uninsurable mortgages carry slightly higher interest rates because the lender assumes more risk.
Variable Rate
A mortgage interest rate that changes with the Bank of Canada's policy rate. Variable-rate mortgages are typically lower than fixed rates initially but rise if the Bank increases rates. Your payment may or may not change depending on your product.
Vendor Take-Back Mortgage
An arrangement where the seller of a property finances part of the purchase, acting as the lender. This is useful when the buyer cannot secure traditional financing or when the buyer's down payment is insufficient for a bank mortgage.
Related Mortgage Resources
These tools and guides complement the glossary and help you make informed decisions.
Mortgage Calculator
Calculate your monthly payments, affordability, closing costs, and prepayment penalties with our interactive tools.
Use Calculator →Market Insights & Blog
Read about bond yields, Bank of Canada decisions, renewal strategies, and what's happening in the Ontario housing market.
Read Blog →First-Time Buyer Guide
A complete walkthrough of down payments, CMHC insurance, the stress test, tax programs like the FHSA, and closing costs.
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