Mortgage Terms Glossary Canada

Plain-English definitions of common Canadian mortgage terms — so you understand exactly what you're signing.

Beat the banks — better rates, better terms, and money-saving strategies they don't tell you about. Expert advice, no fees, no pressure.

The total length of time it takes to fully repay your mortgage, typically 25 years in Canada. A longer amortization lowers your monthly payment but increases total interest paid. The maximum amortization for insured mortgages in Canada is 25 years.

A conditional commitment from a lender indicating how much they would be willing to lend you, based on initial review of your income and credit. Also called pre-approval. It is not a guarantee of final mortgage approval, which depends on the property and full underwriting.

A short-term loan that covers the gap when you buy a new home before your existing home has sold. Bridge financing lets you access your expected sale proceeds early so you can complete your new purchase on time. It is typically repaid as soon as your current property closes.

Canada's most widely used reverse mortgage product, offered by HomeEquity Bank. CHIP (Canadian Home Income Plan) lets homeowners 55+ borrow up to 55% of their home's appraised value as tax-free cash with no monthly payments required. The loan is repaid when the home is sold.

Mortgage default insurance required in Canada when your down payment is less than 20% of the purchase price. It protects the lender if you default, and the premium (0.60%–4.00% of the mortgage amount) is added to your loan balance. CMHC, Sagen, and Canada Guaranty are the three approved providers.

A mortgage that restricts how much extra you can pay down during the term. Paying it off early or breaking it before the term ends triggers a prepayment penalty. Closed mortgages typically offer lower interest rates than open mortgages in exchange for this flexibility trade-off.

A type of mortgage registration that allows a lender to secure additional credit (like a HELOC) under the same charge without re-registering. Unlike a standard charge, it can be registered for more than the mortgage amount. Transferring a collateral charge to another lender usually requires a discharge and re-registration fee.

A mortgage where the down payment is 20% or more of the purchase price, meaning CMHC default insurance is not required. Conventional mortgages offer more flexibility in terms and amortization (up to 30 years), and often have slightly different qualifying rules than insured mortgages.

Two key ratios lenders use to qualify borrowers. Gross Debt Service (GDS) measures housing costs as a percentage of gross income — typically capped at 39%. Total Debt Service (TDS) includes all debt payments and is typically capped at 44%. Staying within these ratios is required to qualify for a mortgage in Canada.

See CMHC Insurance. Mortgage default insurance protects the lender — not the borrower — against non-payment. It is mandatory for any Canadian mortgage with a down payment below 20%. The premium is paid by the borrower but the protection benefits the lender.

A mortgage where the interest rate is locked in for the entire term (e.g. 1, 2, 3, or 5 years). Your payment amount stays the same regardless of what happens to interest rates during the term. Fixed rates provide certainty and budget stability, and are the most popular mortgage type in Canada.

A mortgage where the down payment is less than 20% of the home's purchase price. High-ratio mortgages require default insurance (CMHC, Sagen, or Canada Guaranty) and have a maximum amortization of 25 years. They often qualify for the best advertised rates because of the insurance backing.

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, up to 80%). HELOCs have variable rates tied to prime, and you only pay interest on what you draw. They are not insurable and require at least 20% equity.

Any mortgage backed by CMHC default insurance, typically because the down payment is less than 20%. Insured mortgages often qualify for the lowest available rates since the lender's risk is covered. They are capped at a purchase price of $1.5M (as of 2024) and have a maximum 25-year amortization.

A lender's conditional commitment to provide a mortgage up to a specific amount at a specific rate, based on your verified income, credit, and down payment. Pre-approval is valid for 90–120 days and locks in the rate against increases during that period. It does not guarantee final approval, which depends on the property.

When your mortgage term ends, you renew for a new term at a new interest rate — either with your existing lender or by switching to a new one. Renewal is one of the best opportunities to renegotiate your rate and terms. You can switch lenders at renewal with no penalty.

The length of time your mortgage contract (and its interest rate) is in effect, typically 1–5 years in Canada. At the end of each term, you renew for a new term. The term is different from amortization — your term is when your rate is set, your amortization is the total repayment period.

A mortgage that can be repaid in full or renegotiated at any time without a prepayment penalty. Open mortgages are ideal if you expect to sell your home or pay off the mortgage within the near term. They carry higher interest rates than closed mortgages as the trade-off for flexibility.

A mortgage feature that lets you transfer your existing mortgage (and its rate) to a new property when you move, without triggering a prepayment penalty. Portability is subject to lender approval and usually requires you to qualify on the new property. Not all mortgages are fully portable.

The right to pay down extra principal on your mortgage beyond your regular payments, without penalty — up to a set limit (typically 10%–20% of the original balance per year). Prepayment privileges vary by lender and product. Making lump-sum payments reduces your principal and total interest paid.

The benchmark interest rate that Canadian banks use to set variable rate mortgages, HELOCs, and other loans. It closely tracks the Bank of Canada's overnight rate — typically prime is 2.20% above the overnight rate. As of May 2026, the Bank of Canada overnight rate is 2.25% and prime is approximately 4.45%.

Breaking your existing mortgage (or waiting until term end) to access a new mortgage — often to lower your rate, change your amortization, or access equity. If done before the term ends, a prepayment penalty applies. Refinancing can be worth the penalty if the long-term savings are significant.

A mandatory Canadian mortgage qualification test that requires you to qualify at the higher of your contract rate + 2%, or 5.25%. The stress test ensures borrowers can handle rate increases. As of 2026, most buyers effectively qualify at roughly 6.5–7% even if their actual mortgage rate is lower.

Moving your existing mortgage to a new lender at renewal without changing the principal or amortization. Switching is penalty-free at renewal and can save thousands if you find a better rate. RateStreet can compare lenders and manage the switch process on your behalf.

Insurance that protects homeowners and lenders against losses arising from title-related issues such as fraud, forgery, undisclosed liens, encroachments, or survey errors. In Canada, title insurance is a one-time premium paid at closing and is strongly recommended for all property purchases. It does not cover physical property damage — that is the role of home insurance.

Plain-English definitions of 25+ common Canadian mortgage terms. Understand amortization, stress test, CMHC, variable rate and more before you sign.