Plain language
The Mortgage Glossary.
The mortgage industry runs on acronyms and jargon. Here is what those terms actually mean for your money, in plain language, from Lisa Reynolds and Kelly Foote.
A Lenders
Traditional financial institutions like banks, trust companies, and credit unions. They offer conventional and insured mortgages with the lowest interest rates and no lender fees. However, they have the strictest stress test ratios and require strong credit and income documentation.
Accelerated Payments
An option to slightly increase your regular payment, which pays down the principal faster and reduces your amortization by an average of 2 years.
Adjustable Interest Rate Mortgage
A mortgage where both the interest rate and your monthly payment amount fluctuate based on changes in market rates (the lender’s prime rate).
Amortization / Amortization Period
The total number of years it is scheduled to take to completely pay off your mortgage loan through a pre-determined schedule of payments. The standard amortization is 25 years, though conventional mortgages (and specific first-time buyer and new build insured mortgages as of December 2024) can have 30-year amortizations.
Appraisal
An estimate of the current market value of a home, conducted by a certified professional appraiser. Lenders often require this before approving a mortgage to ensure they are not lending more than the home is worth.
Assumption Agreement (Assumable)
A legal option that allows the person buying a home to take over the existing mortgage of the previous owner. The new buyer must qualify and be approved by the lender.
B Lenders (Alternative Lenders)
Lenders such as specialized trust companies, monolines, or alternative bank branches. They accept files with income or credit profiles that do not fit A lenders. They cannot offer insured mortgages (meaning you must have at least 20% down) and typically charge slightly higher interest rates plus a 1% lender fee.
Borrower(s)
The individual(s) legally responsible for repaying the debt to the financial institution.
Bridge Financing
A short-term loan used to borrow the down payment money for a new home purchase against the equity of the home you are selling. This is used when there is a gap between your buying and selling closing dates.
Certificate of Location (Land Survey)
A document showing the legal boundaries and measurements of a property, the location of any buildings, and whether anyone else has a right (like an easement) to cross the property.
Closed Mortgage
A mortgage that restricts your ability to pay off the loan early or renegotiate the term without paying a financial penalty. Because of these restrictions, closed mortgages generally offer lower interest rates than open mortgages.
Closing Costs
Upfront legal fees, land transfer taxes, title insurance, and other disbursements that must be paid when you officially take ownership of a home. These costs usually range from 1.5% to 4% of the purchase price and must be paid in addition to your down payment.
Co-applicant / Co-borrower
An individual who is registered on title and who is applying for financing alongside the main applicant.
Co-signer
An individual who is registered on title and who is guaranteeing that payments will be made to the lender if the borrower defaults. This is usually required if the applicant has insufficient income.
Collateral Charge Mortgage
A mortgage where a higher amount than what you borrow is registered on the title, allowing you to hold more than one product (such as adding a line of credit) without paying additional lawyer fees.
Commercial Mortgage
Medium to long-term financing used to purchase business premises or an existing business.
Commitment Letter (Mortgage Approval)
A written notification from a lender to a borrower confirming that a mortgage loan of a specific amount is officially approved under specific terms and conditions.
Consenting Spouse
A spouse who holds a family law interest in a matrimonial home but whose name is not on the property title.
Construction Loan
Funds issued to a borrower in stages throughout the construction or major renovation of a home.
Contract Rate
The specific interest rate you pay the lender to borrow the mortgage money.
Conventional Mortgage
A mortgage where the Loan to Value (LTV) is less than 80%, meaning you have a down payment of 20% or more.
Cost of Borrowing (COB)
Mandatory consumer disclosures detailing key credit agreement information, including non-interest costs, interest rates, grace periods, fees, and prepayment rights.
Cost of Goods Sold (COGS)
The final cost of an item after deducting associated production costs, such as labour, materials, and shipping.
Default
Failing to make a mortgage payment on time or breaching the terms of a mortgage loan agreement. Defaulting can result in financial penalties or the lender taking legal action (foreclosure or power of sale) to take possession of the home.
Designated or Surrendered Lands
Reserve lands that a First Nation has designated to the Federal Crown, enabling the Crown to lease those lands on the First Nation’s behalf.
Discounted Rate
A contract rate that the lender records as a discount from their higher posted rate. This can cost you thousands in penalties when breaking a fixed-rate mortgage.
Down Payment
The portion of the home’s purchase price that is not financed by the mortgage and must be paid from your own funds (or an approved gift). The minimum is 5% for homes under $500,000, 10% for the portion between $500,000 and $1.5 million, and 20% for homes $1.5 million or more.
Equalization Payment
The money owed to either spouse to ensure the equal sharing of the value of property acquired during the marriage.
Expense Addback
Specific lender guidelines that permit certain written-off expenses to be directly added back to the client’s qualifying income.
First Home Savings Account (FHSA)
A government program allowing first-time homebuyers to save up to $40,000 tax-free to use toward a down payment.
First-Time Home Buyer
A person who, in the calendar year before the account is opened or in the preceding four calendar years, did not live in a qualifying home as their principal place of residence that they or their spouse or common-law partner owned.
Fixed Rate
An interest rate and payment amount that remain the same for the length of your mortgage term.
Get
The official divorce document in Jewish religious law.
Gross Debt Service Ratio (GDS)
A calculation of your housing affordability. It divides your monthly mortgage, property taxes, and heating costs by your gross income.
Gross Up
A lender policy allowing a percentage increase to a self-employed client’s income by effectively adding back non-cash write-offs (like a home office) to help them qualify for a larger mortgage.
Gross vs. Net
Gross is the total money earned before any taxes or expenses are deducted, while net is the actual amount remaining after those deductions.
Guarantor(s)
A person who guarantees the borrower’s payments but is not a mortgagor, meaning they do not hold an interest on the property title.
Head Lease & Sub-Lease
The Head Lease is the primary arrangement between the landowner and the developer or landlord, while the Sub-Lease is the arrangement between the tenant (borrower) and the landlord.
High Ratio Mortgage
A mortgage where the LTV is greater than 80% (down payment is less than 20%). It must be insured by providers like CMHC, Sagen, or Canada Guaranty.
Home Buyers’ Plan (HBP)
A federal program that allows first-time homebuyers to withdraw up to $60,000 tax-free from their Registered Retirement Savings Plan (RRSP) to use as a down payment. The funds must be repaid to the RRSP over a 15-year period.
Home Equity Line of Credit (HELOC)
A revolving line of credit that allows you to borrow against the equity in your home, usually at a lower interest rate than traditional lines of credit.
Incorporated
A distinct legal entity that separates a company’s assets and income from its owners, allowing the business to acquire assets, enter contracts, go into debt, and sue or be sued.
Interest Adjustments
The interest you owe the lender for the days between the day your purchase closes and the day of your first official mortgage payment.
Interest Rate
The price you pay to borrow money, typically expressed as a percentage.
Interest Rate Differential (IRD)
A method lenders use to calculate the prepayment penalty on fixed-rate mortgages. It is often based on the difference between your contract rate and current market rates.
Issuer
A Canadian trust company, a company licensed to carry on an annuities business in Canada, or a qualifying depositary (such as a credit union or member of the Canadian Payments Association).
Khul’a
An option in an Islamic divorce where the wife initiates the end of the marriage by returning her dowry.
Land Transfer Tax
A tax paid to the government (and sometimes local municipalities) based on the property’s value when you buy a home.
Leased Land
A financial setup where a buyer purchases the home or structure but signs a lease for the independently owned land it sits on.
Loan to Value (LTV)
The total mortgage amount divided by the current appraised value of the home.
Locatee Lands
Reserve land for which a First Nations band member holds a Certificate of Possession, granting them possession rights and the ability to lease the land with specific ministerial and band consents.
Lump Sum Payment
A single extra payment placed directly toward your principal balance, often subject to specific lender restrictions.
Matrimonial Home
The primary residence occupied by both individuals post-marriage and at the time of separation, which can include properties that are rented or jointly or solely owned.
Matrimonial Home Rights (sometimes called Dower Rights)
In Ontario, the Family Law Act gives both spouses equal rights to possession of the matrimonial home, and the spouse on title cannot sell or mortgage it without the other spouse’s written consent, even if only one name is registered. Some other provinces protect a non-owning spouse through dower legislation, which is where the older term comes from.
Mortgage
A legal agreement where a bank or creditor lends money at interest to allow someone to buy a property, secured by the title of the property.
Mortgage Loan Insurance (Default Insurance)
Insurance that protects the lender in case you default on your mortgage. It is generally required if your down payment is less than 20%. Premiums range from 0.6% to 4.5% of your loan amount and are usually rolled into your mortgage balance.
Mortgage Stress Test
A federal rule requiring lenders to qualify you for a mortgage at an interest rate higher than the actual contract rate you are offered (typically the greater of the benchmark rate or your contract rate plus 2%). This ensures you can still afford your payments if interest rates rise.
Mortgage Term
The length of time your current mortgage contract, including the interest rate and conditions, is in effect (typically ranging from 6 months to 10 years). When the term expires, you must renew, renegotiate, or pay off the loan.
Mortgagor(s)
The individual(s) officially listed on the title to the real estate; a mortgagor must also be a borrower.
Non-Resident Speculation Tax (NRST)
An additional tax applied to foreign buyers or non-residents purchasing a home in certain provinces (for example, 25% in Ontario and 20% in British Columbia).
Notice of Assessment (NOA)
A 3 to 4 page summary sent by the CRA after a tax return is filed, confirming whether the taxpayer will receive a refund or owes an outstanding tax bill.
Notice to Reader (NTR)
A financial statement compiled purely for information purposes, typically prepared by a licensed external accountant or CPA.
Open Mortgage
A highly flexible mortgage that allows you to pay off the loan in full or in part at any time without facing financial penalties. In exchange for this freedom, open mortgages usually come with a higher interest rate than closed mortgages.
Open vs. Closed Term
An open term allows the borrower to pay off any amount of the outstanding balance at any time without incurring prepayment charges, though it generally carries a higher interest rate. A closed term restricts how much can be prepaid and incurs prepayment penalties if broken or refinanced early.
Palimony
The financial support that one partner pays to the other after the end of a cohabiting relationship.
Partnership
An unincorporated business operated by two or more people who share in making business decisions and split the profits or losses.
Payment Frequency
How often you make mortgage payments, such as monthly, semi-monthly, biweekly, or weekly.
PITH
An acronym for Principal, Interest, Taxes, and Heating. These are the main monthly costs paid by a homeowner and are used by lenders to calculate debt service ratios.
Portable Mortgage
A feature that allows you to take your mortgage with you to a new property if you sell your current home.
Prepayment Options / Privileges
Contract allowances that let you pay off your mortgage faster without triggering a penalty. Examples include doubling your regular payment, increasing your payment amount, making annual lump-sum payments, or accelerating your payment frequency.
Prepayment Penalty
The fee charged if you need to break your mortgage contract early.
Private Lenders
Mortgage Investment Companies (MICs) or direct private individuals who lend to borrowers with income or credit that does not fit A or B lenders. They charge much higher rates and fees based on risk, and are typically used for short-term financing.
Qualifying Home
A housing unit located in Canada, or a share of the capital stock of a cooperative housing corporation that entitles the shareholder to a housing unit.
Qualifying Individual
A resident of Canada who is at least 18 years old and qualifies as a first-time home buyer.
Quitclaim Deed
The legal term for transferring property ownership from one owner (the grantor) to another (the grantee).
Rate Hold / Pre-Approval
Locking in a specified mortgage rate for a set period of time (typically 90 to 120 days), provided your file conditions do not change.
Retained Earnings
The money a corporation keeps within the company after paying out all direct and indirect costs, taxes, and shareholder dividends.
Second Mortgage
Additional financing placed behind a first mortgage, typically used to pay out debts or obtain funds for home improvements.
Shareholder Loans
Money lent directly from the corporation to a shareholder.
Sole Proprietor
An unincorporated business owned by one individual who receives all profits or losses and holds ultimate responsibility for managing operations.
Spousal Buyout Program
A specialized mortgage product that allows one spouse to purchase the other’s equity in the marital home by refinancing up to 95% of its value to consolidate matrimonial debt and lump-sum equity payments.
Standard Charge Mortgage
A mortgage where the exact amount of money you borrow is registered on the title. It is simple to transfer to another lender and typically has lower penalty costs to break.
Statement of Account (SOA)
A CRA document that shows the exact outstanding balance a taxpayer owes to the agency.
Statement of Business Activities (T2125)
A form used within the T1 General to calculate the business or professional income of a sole proprietor or partnership.
T1 General (Jacket)
The primary 40 to 50 page tax document filed with the CRA for personal income tax returns.
T2 (Corporation Income Tax)
The mandatory tax return document filed by all Canadian-based incorporated businesses, regardless of whether any taxes are owed.
T4, T4A, and T5 Slips
T4s declare employer-earned income and payroll deductions. T4As state other earnings like self-employment, pension, or contract income. T5s declare interest income from non-registered investments.
Talaq
The term used in Islam when the husband initiates the divorce.
Third Party
A person or business not named on the account who dictates how the account holder should deal with funds received. This can also refer broadly to involved family members or independent financial advisors not named as borrowers.
Title Insurance
Insurance that protects the homeowner and lender against losses or damages that could occur because of defects in the property’s title, such as liens or encumbrances.
Total Debt Service Ratio (TDS)
A calculation of your overall debt load. It divides your housing costs plus all other monthly debts by your gross income.
Variable Rate (VRM)
An interest rate tied to the lender’s prime rate that can fluctuate. While the standard monthly payment might remain fixed, the portion going toward principal versus interest will adjust as the rate changes.
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