Plain-language definitions of every term you'll encounter when getting a mortgage in Canada.
The total length of time it takes to fully pay off your mortgage through regular payments. In Canada, the most common amortization period is 25 years, though 30-year amortizations are available for uninsured mortgages. A longer amortization means lower monthly payments but significantly more total interest paid over the life of the loan.
A complete table showing every mortgage payment over the life of the loan, broken down into principal and interest portions. In the early years, most of each payment goes toward interest. Over time, the principal portion grows. CrystalKey generates a full downloadable amortization schedule for any scenario.
The Bank of Canada's overnight lending rate — the key interest rate that influences all borrowing costs in Canada. When the BoC raises or lowers this rate, variable mortgage rates and the prime rate move almost immediately. Fixed mortgage rates are influenced by bond yields, not directly by the overnight rate.
A mortgage that restricts prepayment beyond a set annual limit (typically 10–20% of the original principal). Breaking a closed mortgage before the term ends results in a prepayment penalty — either 3 months' interest or the Interest Rate Differential (IRD), whichever is greater. Most Canadian mortgages are closed.
The federal Crown corporation that provides mortgage default insurance for high-ratio mortgages (less than 20% down payment). CMHC insurance protects the lender — not the borrower — if you default on your mortgage. The premium (2.8%–4.0% of the insured mortgage amount) is added to your mortgage balance and paid over the amortization period.
The insurance premium charged on high-ratio mortgages. The rate depends on your loan-to-value ratio: 4.0% for 5–9.99% down, 3.10% for 10–14.99% down, and 2.80% for 15–19.99% down. The premium is added to your mortgage principal — you don't pay it at closing. However, Ontario, Quebec, and Saskatchewan charge a provincial tax on the premium that is due at closing.
A type of mortgage registration where the lender registers a charge against your property for more than the actual mortgage amount — often up to 125% of the home's value. This makes it easier to borrow more later without legal fees but harder to switch lenders at renewal without discharging and re-registering.
A mortgage where the down payment is 20% or more of the purchase price. Conventional mortgages do not require CMHC mortgage default insurance. They typically offer more flexibility in terms and prepayment options than insured mortgages.
The upfront cash payment you make when purchasing a home. In Canada, the minimum down payment is 5% for homes under $500,000; 5% on the first $500,000 plus 10% on the portion between $500,000 and $1.5 million; and 20% for homes over $1.5 million. A down payment under 20% requires CMHC mortgage insurance.
The true annual interest rate accounting for compounding. In Canada, mortgage rates are compounded semi-annually by law. To find the effective rate, the formula is: EAR = (1 + nominal rate/2)² − 1. This means a quoted rate of 5.0% has an EAR of 5.0625% — slightly higher than a simple annual rate.
A mortgage where the interest rate is locked in for the entire term — your payments stay the same regardless of changes in market rates. Fixed rates are determined by bond yields, particularly the 5-year Government of Canada bond. Fixed mortgages offer payment certainty but often carry higher prepayment penalties than variable rate mortgages.
A key affordability measure used by Canadian lenders. GDS is calculated as your annual housing costs (mortgage principal and interest, property taxes, heat, and 50% of condo fees) divided by your gross annual income. As of December 2024, CMHC allows a maximum GDS of 39% for insured mortgages. Most lenders use 32–39% depending on the mortgage type.
A revolving line of credit secured against your home's equity. You can borrow up to 65% of your home's appraised value (combined with your mortgage, total borrowing cannot exceed 80% of home value). HELOCs have variable rates tied to prime, and you pay interest only on the amount you use.
A mortgage where the down payment is less than 20% of the purchase price. High-ratio mortgages require CMHC (or Sagen/Canada Guaranty) mortgage default insurance. Only available for homes priced up to $1.5 million. Also called an insured mortgage.
A federal program allowing first-time home buyers to withdraw up to $60,000 per person ($120,000 per couple) from their RRSP tax-free toward a home purchase. The withdrawal must be repaid to your RRSP over 15 years. The $60,000 limit was increased from $35,000 in the 2024 federal budget.
A prepayment penalty charged by lenders when you break a fixed-rate mortgage before the term ends. The IRD is calculated as the difference between your contracted rate and the lender's current rate for the remaining term, multiplied by your outstanding balance and the time remaining. IRD penalties can be very large — often $15,000–$30,000 on big bank mortgages.
A provincial tax paid when purchasing real estate. Most provinces charge LTT based on the purchase price using a marginal tax rate structure. Ontario and British Columbia offer rebates for first-time home buyers. Toronto charges an additional municipal LTT on top of Ontario's provincial tax. Alberta, Saskatchewan, and rural areas of some provinces have no LTT or a nominal title transfer fee only.
An optional extra payment made directly against your mortgage principal, separate from regular payments. Most closed mortgages allow lump sum prepayments of 10–20% of the original principal per year without penalty, typically on your mortgage anniversary date. Lump sum prepayments reduce your outstanding balance and can significantly shorten your amortization.
Your outstanding mortgage balance divided by your home's appraised value, expressed as a percentage. LTV determines your equity and affects what mortgage products you qualify for. LTV above 80% requires CMHC insurance. Refinances are capped at 80% LTV. HELOCs are available up to 65% LTV (combined with mortgage up to 80%).
The smallest down payment legally permitted in Canada. For homes under $500,000: 5%. For homes between $500,000 and $1,500,000: 5% on the first $500,000 plus 10% on the remainder. For homes over $1,500,000: 20%. The $1.5 million threshold was increased from $1 million in December 2024.
A licensed professional who shops your mortgage application to multiple lenders on your behalf, including banks, credit unions, and monoline lenders. Brokers are paid by the lender (not by you) and can often access rates and products not available directly to the public. In Canada, mortgage brokers must be licensed in each province where they operate.
Insurance required on high-ratio mortgages (under 20% down) that protects the lender if the borrower defaults. In Canada, three companies provide this insurance: CMHC (government-owned), Sagen (formerly Genworth), and Canada Guaranty. The premium is paid by the borrower and added to the mortgage balance.
The length of your current mortgage contract — typically 1 to 10 years in Canada. At the end of your term, you must renew, refinance, or pay off the remaining balance. The most popular choice in Canada is the 5-year fixed term. The term is different from the amortization period — most mortgages require several renewals before the mortgage is fully paid off.
A mortgage that allows you to repay any amount at any time without penalty. Open mortgages offer maximum flexibility but typically carry higher interest rates than closed mortgages — often 1–2% above equivalent closed rates. Useful if you plan to sell or pay off the mortgage soon.
How often you make mortgage payments. Options in Canada include monthly (12/year), semi-monthly (24/year), biweekly (26/year), accelerated biweekly (26/year but higher amounts), weekly (52/year), and accelerated weekly (52/year but higher amounts). Accelerated payment frequencies effectively make one extra monthly payment per year, reducing amortization significantly.
A mortgage feature that allows you to transfer your existing mortgage — including the interest rate and remaining term — to a new property when you move. Portability avoids prepayment penalties when selling and buying simultaneously. Not all mortgages are portable, and lenders may require re-qualification on the new property.
A fee charged by your lender when you pay off your mortgage early or make payments exceeding your annual prepayment privilege. For fixed-rate mortgages, the penalty is the greater of 3 months' interest or the Interest Rate Differential (IRD). For variable-rate mortgages, the penalty is typically just 3 months' interest. Bank IRD penalties are often much larger than those of monoline lenders.
The right to make additional payments toward your mortgage principal without penalty, up to a specified annual limit. Most closed mortgages in Canada allow prepayments of 10–20% of the original principal per year, either as lump sums on your anniversary date or as increased regular payments. These privileges can significantly reduce your total interest cost.
The benchmark interest rate used by major Canadian banks to price variable rate mortgages and lines of credit. The prime rate is typically 2.20% above the Bank of Canada overnight rate. When the BoC changes its overnight rate, Canadian banks usually adjust the prime rate by the same amount within a day. As of April 2026, the prime rate is 4.45%.
The outstanding balance of your mortgage — the amount you actually owe, excluding interest. Each mortgage payment reduces your principal by a small amount (with more going to interest early in the amortization). Extra or accelerated payments reduce principal directly, saving significant interest over time.
An annual tax charged by your municipality based on the assessed value of your property. Rates vary significantly across Canada — from under 0.5% in some BC municipalities to over 1.5% in parts of Ontario and Manitoba. Your lender may collect property tax monthly and remit it on your behalf (tax account). Property tax is included in GDS ratio calculations.
Replacing your existing mortgage with a new one — typically to access home equity, get a lower rate, or change your mortgage terms. Refinancing is capped at 80% of your home's appraised value. It often involves prepayment penalties if done mid-term, plus legal and appraisal fees. Refinancing is distinct from renewal (which happens at the end of your term).
The process of signing a new mortgage contract when your current term expires. At renewal, your lender offers new rates and terms. You can accept, negotiate, or switch to a new lender (called a transfer or switch). Switching lenders at renewal does not incur prepayment penalties. Most Canadians renew every 5 years.
A tax-advantaged savings account that can be used toward a home purchase through the Home Buyers' Plan (HBP). First-time buyers can withdraw up to $60,000 per person from their RRSP tax-free for a down payment, with 15 years to repay the amount. RRSP contributions reduce your taxable income in the year of contribution.
The compounding frequency required by Canadian law for mortgages (Interest Act). Interest compounds twice per year in Canada, unlike the US where monthly compounding is standard. This makes Canadian mortgage math slightly different — our calculators correctly apply semi-annual compounding when converting quoted rates to effective periodic rates.
A mandatory federal qualification test requiring lenders to verify you can afford mortgage payments at a higher interest rate — specifically the greater of your contract rate + 2% or 5.25%. The stress test applies to both insured and uninsured mortgages. It was introduced to ensure borrowers can handle rate increases at renewal. The stress test uses your GDS and TDS ratios calculated at the higher stress test rate.
A key affordability measure including all debt obligations. TDS is calculated as your total annual housing costs (GDS) plus all other monthly debt payments (car loans, student loans, credit card minimums, etc.) divided by gross annual income. The CMHC maximum TDS is 44%. Lenders will not approve a mortgage if your TDS exceeds this limit.
Insurance protecting against defects in the property title — such as errors in public records, unknown liens, forgery, or encroachments. A one-time premium, typically $200–$400 for residential properties. Required by most lenders. Covers both the lender (lender's policy) and optionally the homeowner (owner's policy).
Moving your mortgage to a new lender at renewal without changing the mortgage amount or amortization. A straight transfer at renewal avoids prepayment penalties. The new lender pays legal and appraisal fees in most cases. You must re-qualify with the new lender, including passing the stress test.
A mortgage where the interest rate fluctuates with the lender's prime rate, which tracks the Bank of Canada overnight rate. Variable rates are typically expressed as prime ± a discount (e.g., prime − 0.80%). When the BoC cuts rates, variable mortgage payments drop; when rates rise, payments increase. Prepayment penalties for variable mortgages are typically just 3 months' interest.
A financing arrangement where the seller of a property acts as the lender, providing all or part of the mortgage to the buyer. VTBs are used when buyers can't secure full conventional financing or as a negotiating tool. Terms are negotiated between buyer and seller and registered against the property title.
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