This mortgage terms glossary explains the words you’ll hear from lenders, mortgage agents and lawyers when you buy a bungalow in Canada. It’s grouped by stage, from pre-approval to renewal, so you can look up a term the moment it comes up. Bookmark it and keep it open during your next lender call.
Key takeaways
- The term is your rate contract; the amortization is your full payoff timeline.
- Prepayment privileges and penalties matter as much as the rate itself.
- Portability and assumability can save you money if you move or sell.
- Ask what kind of charge your lender registers before you sign.
Terms you’ll hear before you buy
- Pre-approval: a lender’s review of your income, debts and credit that sets a maximum price and often holds a rate for a set period. It is not a final approval.
- Down payment: the cash you put toward the purchase. In Canada, it’s 5% on the first $500,000, 10% on the portion up to $1,499,999, and 20% at $1.5 million and up.
- Debt service ratios: the share of your income going to housing costs and to all debts. Lenders use them to cap how much you can borrow.
- Stress test: the rule that you must qualify at the higher of your contract rate plus 2% or 5.25%.
- Mortgage default insurance: insurance from CMHC, Sagen or Canada Guaranty, required when you put down less than 20%. It protects the lender.
- High-ratio vs conventional: high-ratio means under 20% down and insured; conventional means 20% or more down.
Terms that describe the mortgage itself
| Term | What it means |
|---|---|
| Principal | The amount you borrowed and still owe. |
| Interest | What the lender charges you to borrow, shown as a yearly rate. |
| Amortization | The total time to pay the loan off, often 25 or 30 years. |
| Term | How long your current rate and conditions last, commonly 1 to 5 years. |
| Fixed rate | A rate that doesn’t change during the term. |
| Variable rate | A rate tied to the lender’s prime rate that moves when prime moves. |
| Prime rate | A lender’s benchmark rate, about 4.45% as of September 2026. |
| Open mortgage | Can be paid off any time without penalty, usually at a higher rate. |
| Closed mortgage | Limits extra payments and charges a penalty for breaking it early. |
Variable vs adjustable
These two get mixed up. With an adjustable-rate mortgage, your payment changes when prime changes. With a traditional variable-rate mortgage, your payment may stay the same while the split between principal and interest shifts. Ask which one you’re being offered.
Payment and flexibility terms
- Payment frequency: monthly, semi-monthly, bi-weekly or weekly.
- Accelerated bi-weekly: half a monthly payment every two weeks. Because there are 26 pay periods, you make the equivalent of one extra monthly payment a year.
- Prepayment privileges: how much extra you can pay each year without penalty, through lump sums or higher payments.
- Portability: the ability to move your mortgage, rate and term to a new home. Handy if you upgrade from a bungalow to a bungaloft mid-term.
- Assumability: a buyer takes over your existing mortgage, with lender approval.
- Blend and extend: combining your current rate with a new rate when you add money or extend your term.
Bungalow tip: Planning to finish the basement or add a legal second unit in a few years? Look for strong prepayment and portability features and ask about adding funds later without breaking the mortgage.
Penalty terms to understand before you sign
- Prepayment penalty: the charge for breaking a closed mortgage early.
- Three months’ interest: a common penalty method, especially on variable mortgages.
- Interest rate differential (IRD): a penalty method on many fixed mortgages, based on the gap between your rate and current rates. It can be much larger than three months’ interest.
- Posted vs discounted rate: some lenders calculate IRD using posted rates, which can raise the penalty. Ask how yours is calculated.
Terms you’ll hear at closing
- Appraisal: the lender’s estimate of the home’s value. If it comes in low, you may need more down payment.
- Title insurance: covers certain title problems, fraud and survey issues.
- Statement of adjustments: your lawyer’s summary of what you owe or are credited on closing, including property tax and utility adjustments.
- Land transfer tax: a one-time tax on the purchase, with a second municipal tax inside Toronto. See our guide to Ontario land transfer tax.
- Standard vs collateral charge: a standard charge secures only the mortgage amount. A collateral charge can secure more, which makes adding a line of credit easier but switching lenders harder.
Terms you’ll hear at renewal and beyond
- Renewal: signing a new term when your current one ends.
- Switch or transfer: moving your mortgage to a new lender at renewal. Since November 2024, a straight switch no longer requires re-passing the stress test.
- Refinance: replacing your mortgage, often to borrow more or change the amortization.
- HELOC: a home equity line of credit you can draw on as needed. Learn more in our guide to using home equity to renovate.
Frequently asked questions
What’s the difference between a mortgage term and amortization?
The term is how long your rate and conditions last, often five years. Amortization is the total time to pay off the loan, often 25 or 30 years.
What does IRD mean on a mortgage?
IRD stands for interest rate differential. It’s a penalty some lenders charge for breaking a fixed mortgage early, and it can be large.
Is a pre-approval a guarantee?
No. A pre-approval is conditional. The lender still has to approve the specific property and confirm your documents.
The bottom line
Knowing the vocabulary helps you compare offers and ask sharper questions. Before you sign, ask your mortgage agent to explain the term, prepayment rules, penalty method and type of charge in writing. Then see what your budget buys with our mortgage calculators.
