Glossary
Mortgage terms, decoded
The Canadian mortgage vocabulary you'll meet along the way.
- Amortization
- The total length of time to fully pay off your mortgage in full, commonly 25 years in Canada, though 30-year amortization is available to first-time buyers and buyers of new construction on insured mortgages.
- Term
- The length of your current mortgage contract and rate, often 1 to 5 years, after which you renew or switch lenders.
- Stress test (MQR)
- A federal OSFI rule (formally the Minimum Qualifying Rate) requiring federally regulated lenders to qualify you at the greater of your contract rate plus 2%, or a benchmark rate of 5.25%.
- Straight switch
- A mortgage renewal where you move an existing uninsured mortgage to a new federally regulated lender with no increase in the loan amount or amortization. Since November 21, 2024, OSFI no longer requires the stress test to be applied to these switches.
- CMHC insurance
- Mortgage default insurance required when your down payment is under 20%. It protects the lender, not the borrower, and is also offered by two other insurers, Sagen and Canada Guaranty.
- Insured mortgage cap
- The maximum home price eligible for mortgage default insurance in Canada: $1.5 million, effective December 15, 2024 (raised from $1 million). Homes priced at or above this cap require a minimum 20% down payment and cannot be insured.
- Prime rate
- The benchmark lending rate each bank sets, largely influenced by the Bank of Canada's overnight target rate. Variable mortgage rates move up or down with prime.
- LTV (loan-to-value)
- Your mortgage amount expressed as a percentage of the home's value. A lower LTV generally means less risk for the lender and can mean better rates.
- Prepayment penalty
- A charge for breaking a closed mortgage before the end of its term, usually the greater of three months' interest or the interest rate differential (IRD).
- HELOC
- A home equity line of credit: revolving credit secured against your home, typically available up to 65% of its appraised value on its own, or 80% combined with any existing mortgage.
- Closed mortgage
- A mortgage with typically lower rates but limits on how much of the principal you can prepay each year without penalty.
- Open mortgage
- A mortgage you can repay in full at any time without penalty, usually at a meaningfully higher rate than a closed mortgage.
- FHSA (First Home Savings Account)
- A tax-advantaged account for first-time home buyers: contributions are tax-deductible like an RRSP, and qualifying withdrawals are tax-free like a TFSA. The annual contribution limit is $8,000, to a $40,000 lifetime maximum.
- RRSP Home Buyers' Plan (HBP)
- A program letting first-time buyers withdraw up to $60,000 from an RRSP tax-free toward a home purchase, to be repaid over 15 years. Withdrawals made from January 1, 2026 onward have a 2-year grace period before repayment starts.
- Down payment
- The portion of the purchase price paid upfront. Minimum requirements in Canada are 5% on the first $500,000, 10% on the portion from $500,000 to $1.5 million, and 20% at or above $1.5 million.
- Fixed-rate mortgage
- A mortgage where the interest rate is locked for the full term, giving predictable payments regardless of what happens to prime or bond yields during that term.
- Variable-rate mortgage
- A mortgage where the interest rate moves with the lender's prime rate. Payments may stay fixed while the interest/principal split changes, or adjust with the rate, depending on the product.
- Bond yield (GoC bond)
- The yield on Government of Canada bonds, particularly the 5-year bond, which lenders use as a benchmark when pricing fixed mortgage rates.
- Overnight rate
- The interest rate the Bank of Canada targets for overnight lending between financial institutions. Changes to this rate are the main driver of changes to prime rate.
- Land transfer tax (LTT)
- A tax charged by most provinces (and some cities) when a property changes ownership. Alberta and Saskatchewan do not charge LTT; they charge smaller registration fees instead.
- Land titles registration fee (Alberta)
- Alberta's alternative to land transfer tax: a Land Titles Office fee of $50 plus $5 per $5,000 of value (or part thereof), charged separately on the title transfer and on the mortgage registration.
- RECA (Real Estate Council of Alberta)
- The independent, self-regulating body that licenses and regulates mortgage brokerages, brokers, and associates in Alberta under the Real Estate Act.
- Mortgage broker
- A licensed professional who shops your mortgage application across multiple lenders to find suitable rates and terms, rather than representing a single bank.
- A lender
- A prime lender, typically a major bank or large mortgage finance company, offering the lowest rates to borrowers who meet standard income, credit, and down payment requirements.
- B lender
- An alternative lender serving borrowers who don't fit A-lender criteria, such as self-employed applicants with non-standard income documentation. Rates are typically higher than A lenders.
- Private lender
- An individual or company lending mortgage funds outside the regulated bank/credit union system, usually at higher rates, for borrowers who can't qualify with A or B lenders.
- Second mortgage
- An additional loan registered against a property that already has a first mortgage, using the remaining home equity as security. Typically carries a higher rate than the first mortgage.
- Monoline lender
- A lender that only offers mortgages, with no retail branches or other banking products, usually available exclusively through mortgage brokers.
- Interest rate differential (IRD)
- A prepayment penalty calculation used mainly on fixed-rate mortgages, based on the gap between your contract rate and the lender's current rate for a term similar to your remaining time left.
- Renewal
- The point at which your mortgage term ends and you sign a new term, either with your existing lender or by switching to a new one, on the remaining balance.
- Portability
- A mortgage feature allowing you to transfer your existing rate and terms to a new property if you move during your term, avoiding a prepayment penalty.
- Pre-approval
- A lender's conditional commitment to lend you a certain amount at a held rate, based on a review of your income, credit, and debts, before you've found a property.
- Appraisal
- A professional assessment of a property's market value, used by lenders to confirm the home supports the mortgage amount being requested.
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