Mortgage Terms Explained: A Canadian Glossary

Mortgage terms explained simply: a mortgage is a secured loan with a term (the length of your contract), an amortization (the total schedule to pay it off), a rate that is fixed or variable, and a set of prepayment rules. This glossary defines the words that appear in Canadian mortgage documents so you can read an offer with confidence.

Why the vocabulary matters

Most expensive mortgage mistakes come from misunderstanding one or two words, not from picking the wrong lender. Confusing term with amortization, or assuming a variable rate behaves like a fixed one, can cost thousands over a few years. Because a mortgage contract is a legal document, the definitions below are the ones that change your money.

The list is grouped by the part of the mortgage each word describes, because that is how the words appear in your documents. Rate words tell you what you pay, prepayment words tell you what leaving costs, and insurance words tell you what protects the lender. Once you can sort a new term into one of those buckets, you already understand most of it.

Read this list before you meet a lender, then keep it handy. If a document uses a word you cannot define in your own words, ask for a written explanation before you sign. It is far easier to ask a question now than to renegotiate later.

The term and amortization pair

• Term — the period your current contract runs, commonly a few years. At the end you renew, switch, or pay out.
• Amortization — the total time scheduled to eliminate the loan, often up to 25 years for insured mortgages.
• Renewal — signing a new term with your existing lender when the current one ends.
• Refinance — replacing the mortgage with a new one, often to change the amount or the terms.
• Blend and extend — combining your existing rate with a new one and extending the term, a common renewal option.
• Porting — moving the mortgage to a new property without breaking the contract.

If those two central ideas still blur together, the difference between mortgage term and amortization has its own walkthrough.

Rate vocabulary

• Fixed rate — your interest rate and payment stay constant for the term.
• Variable rate — the rate moves with your lender's prime rate, so the payment or the interest portion changes.
• Prime rate — the benchmark lenders use to price variable loans; it responds to the Bank of Canada policy rate.
• Posted rate — the lender's headline rate, usually discounted for qualified borrowers.
• Discount — the gap between the posted rate and the rate you are actually offered.
• Trigger rate — the level at which a variable payment no longer covers the interest on some products, causing the balance to grow.
• Annual percentage rate (APR) — the rate plus certain fees, shown so you can compare offers on a common basis.

How those rates are set and what moves them is covered in fixed versus variable mortgage rates.

Prepayment and penalty language

Closed mortgages limit how much extra you may pay without a charge. The words here decide what leaving early costs.

The interest rate differential is the term most borrowers wish they had understood before signing, because it can be the largest single cost of moving or refinancing early.

Insurance and cost terms

• Loan-to-value (LTV) — the loan as a percentage of the home's value; a lower LTV means more equity.
• Mortgage default insurance — required on high-ratio loans and paid for by the borrower, it protects the lender, not you.
• High-ratio mortgage — a loan above 80% LTV, which must normally be insured.
• Conventional mortgage — a loan at or below 80% LTV that does not require default insurance.
• Closing costs — legal fees, title insurance, inspection, and land transfer tax paid around closing.
• Discharge fee — a fee to remove the lender's charge from the title when the mortgage is paid out.

Process and property terms

• Pre-approval — a lender's estimate of how much it may lend you, often with a rate hold.
• Rate hold — a commitment to hold a rate for a set period while you shop for a home.
• Charge — the lender's registered interest in your property title.
• Collateral charge — a registration that can cover future borrowing, not just the mortgage.
• Home equity line of credit (HELOC) — a revolving credit line secured by your home.
• Bridge financing — short-term borrowing that covers the gap between buying and selling.

Once these words are clear, the numbers become easier to compare. A mortgage payment calculator is a useful next step, because it turns the vocabulary into a monthly figure you can judge.

Reading an offer without getting lost

When you receive a mortgage commitment, read it in order: term, rate and rate type, payment frequency, amortization, prepayment privileges, and the penalty formula. Then check the total borrowing cost, not just the rate, because a slightly higher rate with generous prepayment privileges can be cheaper for a borrower who plans to pay down early.

A useful habit is to highlight every number in the commitment and label it: rate, payment, balance, penalty, fee. Numbers without labels are where misunderstandings hide. If a figure has no explanation beside it, that is a question to ask before you sign anything.

If any word is unclear, ask the lender or broker to define it in writing. Confirm the current rules with your lender as well, since products and policies change over time, and a term that meant one thing a few years ago may be defined differently today.