Mortgage glossary
Plain definitions.
No jargon in the definitions.
Every term you'll encounter in a mortgage application, explained in language that's actually useful. Search or browse alphabetically.
A
Amortization
The total length of time it takes to pay off your mortgage in full. Most mortgages in Canada are amortized over 25 years, though 30-year amortizations are available for insured mortgages in some circumstances. A longer amortization lowers your monthly payment but increases the total interest you pay.
Appraisal
An independent assessment of a property's market value, conducted by a licensed appraiser. Lenders order appraisals to confirm the property is worth what you're paying for it before lending against it. In some situations, a desk appraisal or automated valuation is used instead of a full physical inspection.
B
Bridge Financing
A short-term loan that lets you take possession of a new property before your existing one has sold. It uses the equity from your pending sale as security. Typically runs 30 to 90 days and carries a higher rate than a standard mortgage. Useful when both transactions have firm dates but the closing dates don't line up.
Related: Move-up buying →C
CMHC Insurance
Mortgage default insurance provided by Canada Mortgage and Housing Corporation (and two private insurers, Sagen and Canada Guaranty). Required on any mortgage with less than 20% down payment. The premium is added to your mortgage balance. It protects the lender, not you, but it's what makes high-ratio mortgages available at reasonable rates.
Closing Costs
Expenses paid when a real estate transaction closes, beyond the down payment. In Nova Scotia, these typically include land transfer tax (1.5% on most residential purchases), legal fees, title insurance, home inspection, and appraisal. Budget $3,000 to $6,000 depending on the purchase price.
Related: First home →Conventional Mortgage
A mortgage where the down payment is at least 20% of the purchase price. Mortgage default insurance is not required. You can borrow up to 80% of the property value.
D
Debt Service Ratio
A calculation lenders use to assess your ability to carry debt. The Gross Debt Service (GDS) ratio measures housing costs against income. The Total Debt Service (TDS) ratio adds all other debt payments. Standard limits are 39% GDS and 44% TDS, though some lenders flex slightly above these.
Default Insurance
See CMHC Insurance. Required on mortgages with less than 20% down payment. The premium ranges from 0.6% to 4.5% of the insured mortgage amount depending on your down payment percentage.
Down Payment
The portion of the purchase price you pay upfront. In Canada, the minimum down payment is 5% on purchases up to $500,000, scaling up to 10% on the portion between $500,000 and $999,999. Properties over $1 million require 20% minimum. A down payment of 20% or more avoids mortgage default insurance.
F
FHSA (First Home Savings Account)
A registered account that lets first-time home buyers save up to $8,000 per year tax-free, to a lifetime maximum of $40,000. Contributions are tax-deductible. Withdrawals used for a qualifying home purchase are tax-free. If you're a first-time buyer and haven't opened one, you should, even if you're not buying immediately.
Related: First home →Fixed Rate
A mortgage where the interest rate stays the same for the entire term. Your payment is predictable. You trade that certainty for a rate that's typically slightly higher than variable. Makes sense when rate stability matters more than lowest possible rate.
H
High-Ratio Mortgage
A mortgage where the down payment is less than 20% of the purchase price. Default insurance from CMHC, Sagen, or Canada Guaranty is required. The loan-to-value ratio is above 80%.
HELOC (Home Equity Line of Credit)
A revolving credit facility secured against the equity in your home. You can borrow up to 65% of your home's appraised value (combined with your mortgage, up to 80%). Interest-only payments are typically required on the outstanding balance. Not a substitute for a mortgage but can be used alongside one.
I
Interest Rate Differential (IRD)
One of two methods used to calculate a break penalty on a fixed-rate mortgage. IRD is based on the difference between your contract rate and the rate the lender can charge for your remaining term. In a falling-rate environment, IRD penalties can be significant. The other method is three months' interest, and lenders charge whichever is greater.
Related: Refinance →L
Land Transfer Tax
A provincial tax paid by the buyer when property changes hands. In Nova Scotia, the rate is 1.5% on most residential purchases. Nova Scotia does not have a municipal land transfer tax (unlike Toronto, which has both provincial and municipal). This is a one-time cost paid at closing.
Loan-to-Value (LTV)
The ratio of the mortgage amount to the appraised value of the property. A $400,000 mortgage on a $500,000 property is 80% LTV. Lenders use LTV to assess risk. Higher LTV means more lender exposure; at above 80%, default insurance is required.
M
Maturity Date
The date your mortgage term ends. At maturity, you can renew with your current lender, switch to a different lender, or pay out the balance. Most lenders allow you to lock in a renewal rate up to 120 days before maturity.
Related: Renewal →Mortgage Broker
A licensed intermediary who shops multiple lenders on your behalf. Unlike a bank that can only offer its own products, a broker has access to a range of lenders including chartered banks, credit unions, monoline lenders, and alternative lenders. Brokers are paid by the lender, not by the borrower.
Mortgage Term
The period your current rate and conditions are locked in. In Canada, five years is the most common term, but terms range from six months to ten years. At the end of your term, you renew or pay out. The term is not the same as amortization.
N
NOA (Notice of Assessment)
A document issued by the Canada Revenue Agency after you file your tax return. It confirms the income reported and whether you owe more tax or are owed a refund. Lenders require the last two years of NOAs to verify income. Self-employed borrowers especially need these.
P
Penalty
The cost of breaking a mortgage before the end of its term. For variable-rate mortgages, the standard penalty is three months' interest. For fixed-rate mortgages, you pay the greater of three months' interest or the Interest Rate Differential (IRD). The amount varies by lender and product.
Related: Refinance →Portability
The ability to transfer your existing mortgage to a new property when you move, keeping the same rate and terms. Not all products or scenarios qualify. Timing matters: most lenders require both transactions to close within a set window. Your broker will verify whether your mortgage is portable before you rely on it.
Related: Move-up buying →Pre-Approval
A conditional commitment from a lender that they would consider lending you a specific amount, based on your financial profile at the time of application. A pre-approval involves a credit check and income review. It's conditional, not guaranteed. The property still needs to qualify, and your financial situation needs to remain stable between pre-approval and closing.
Related: First home →Pre-Qualification
An informal estimate of how much you might qualify for, based on a conversation. No credit check, no document review, no lender commitment. Less reliable than a pre-approval. Useful as a rough guide, not something to start making offers on.
R
Refinance
Breaking your existing mortgage and replacing it with a new one, typically to access equity, lower your rate, or change your product. There is usually a penalty to break the mortgage, and you'll pay legal fees and potentially an appraisal. The math needs to work: penalty plus costs must be less than what you gain.
Related: Refinance →Renewal
At the end of your mortgage term, you renew to begin a new term. You can stay with your current lender or switch to a different one at no penalty. Switching lenders at renewal involves some paperwork but is less complicated than most people expect. Your bank's renewal offer is rarely their best rate.
Related: Renewal →RRSP Home Buyers' Plan
A federal program that lets first-time home buyers withdraw up to $35,000 from their RRSP for a home purchase without immediate tax consequences. The amount must be repaid to your RRSP over 15 years, or it's added to your taxable income. Can be combined with a partner's RRSP for up to $70,000 total.
S
Stress Test
A federal regulation requiring borrowers to qualify at a rate higher than the one they're actually getting. As of 2024, this is the greater of 5.25% or your contract rate plus 2%. It's designed to ensure you can still carry the mortgage if rates rise. In practice, it reduces the maximum amount you qualify for.
T
T4
A tax slip issued by your employer showing your employment income and taxes deducted for the year. Lenders typically require the last two years of T4s to verify salaried income. Self-employed borrowers use T1 General returns instead.
Title Insurance
Insurance that protects against losses related to title defects, survey errors, and certain other title issues. Typically a one-time premium paid at closing. Most lenders require it. It protects both you and the lender.
V
Variable Rate
A mortgage where the interest rate moves with the lender's prime rate, which follows the Bank of Canada's policy rate. Your payment may be fixed (but the portion applied to principal fluctuates) or the payment itself adjusts. Variable rates are historically lower than fixed but carry more uncertainty. Break penalty is typically three months' interest.
A note on these definitions
These are general definitions. Mortgage rules in Canada change regularly, and the specifics depend on your lender, your province, and your situation. What applies in Nova Scotia may not apply elsewhere.
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