Mortgage Glossary

Mortgage jargon can make a straightforward process feel complicated. This glossary from Jason Scott defines the terms you are most likely to encounter in plain language. Bookmark it and refer back as you move through your pre-approval, purchase, or renewal.

Amortization

The total number of years over which you will pay off your mortgage in full. Common amortizations are 25 or 30 years. Longer amortizations mean lower monthly payments but more total interest paid.

Appraisal

A professional assessment of a property's current market value, ordered by the lender to confirm the home is worth what you are paying (or borrowing against).

Blended Payment

A regular mortgage payment that combines both principal and interest in a single amount. Most standard mortgages use blended payments.

Bridge Financing

A short-term loan that covers the gap when you buy a new home before selling your current one. It bridges the period between your purchase closing and your sale closing.

Closed Mortgage

A mortgage with restrictions on how much extra you can pay during the term. Most mortgages are "closed" with limited prepayment privileges (e.g., 15% to 20% per year). Breaking a closed mortgage before term end triggers a penalty.

CMHC Insurance (Mortgage Default Insurance)

Insurance required when your down payment is less than 20%. It protects the lender (not you) against default. The premium is typically added to your mortgage balance. Provided by CMHC, Sagen, or Canada Guaranty.

Conventional Mortgage

A mortgage where the down payment is 20% or more of the purchase price. No mortgage default insurance is required.

Debt Service Ratios (GDS/TDS)

Gross Debt Service (GDS) measures housing costs as a percentage of gross income. Total Debt Service (TDS) adds all other debt payments. Lenders use these ratios to determine how much you can afford.

Equity

The difference between your home's current market value and what you owe on it. Equity grows as you pay down your mortgage and as your home appreciates in value.

Fixed Rate

An interest rate that stays the same for the entire term of your mortgage. Your payment does not change regardless of market rate movements. See the fixed rate guide.

HELOC (Home Equity Line of Credit)

A revolving line of credit secured against your home equity. You pay interest only on what you draw, and the credit replenishes as you repay. Requires 20% equity. See the HELOC guide.

Interest Rate Differential (IRD)

A penalty calculation used when breaking a fixed-rate mortgage. It compares your contract rate to the lender's current rate for the remaining term and can produce large penalties in falling rate environments.

Maturity Date

The date your current mortgage term ends. At maturity, you renew with your current lender or switch to a new one. No penalty applies for switching at maturity.

Open Mortgage

A mortgage that allows unlimited extra payments or full payoff at any time without penalty. Open mortgages typically carry higher interest rates to compensate for this flexibility.

Portability

A feature that allows you to transfer your existing mortgage rate and terms to a new property if you sell and buy during the same term. Not all products are portable.

Pre-Approval

A lender's written commitment to lend you a specific amount, based on full verification of your income, credit, and down payment. Includes a rate hold. See pre-approvals.

Prepayment Privilege

The amount of extra payment your mortgage allows each year without penalty. Typically expressed as a percentage (e.g., 15% lump sum annually and 15% payment increase).

Prime Rate

The base interest rate set by each lender, influenced by the Bank of Canada's policy rate. Variable-rate mortgages and HELOCs are priced relative to prime.

Refinance

Replacing your existing mortgage with a new one, typically to access equity, improve your rate, or change your terms. See the refinance service page.

Stress Test

The requirement that all mortgage applicants qualify at a rate higher than their contract rate (contract rate plus 2% or the benchmark rate, whichever is greater). This ensures affordability even if rates rise.

Term

The length of time your current rate and conditions are in effect (commonly 1 to 5 years). Not the same as amortization. At the end of each term, you renew or switch lenders.

Variable Rate

An interest rate that moves with the lender's prime rate. When prime changes, your rate changes. See the variable rate guide.

Need a term explained that is not listed here? Contact Jason for a plain-language answer.