Mortgage terms, and what each one actually means for you
Most glossaries tell you what a word means. This one also tells you why it matters — because the definition is rarely the part that costs you money.
44 terms
Before you even look at a house
Pre-qualification
An estimate of what you might borrow, based on figures you supplied. Nothing is verified.
What it means for youIt is a guess with a nicer name. Sellers know the difference, and so does your deposit.
Pre-approval
A lender’s assessment after reviewing your income documents, pulling your credit and confirming your down payment, usually with a rate held for a set period.
What it means for youThis is the number to shop against. It also buys you time to fix anything that turns up while fixing it is still cheap.
Stress test / qualifying rate
A federal rule requiring you to prove you could still afford the payment at a rate higher than the one you will actually pay.
What it means for youIt is why your approval is smaller than an online calculator says. You are tested at a rate you will never be charged.
GDS and TDS (debt service ratios)
Two percentages. GDS compares your housing costs to your income; TDS compares housing plus every other debt payment to your income.
What it means for youTDS is where your car loan lives. Every committed monthly payment comes off the top before a mortgage is even considered.
Beacon score
The credit score most Canadian lenders actually use. It is often not the number shown by free credit apps.
What it means for youIt does not just decide yes or no. At 680 your allowed ratios improve from 35/42 to 39/44, so the same income qualifies for more.
Down payment
The cash you put in up front. Minimum 5% up to $500,000; 5% on the first $500,000 plus 10% on the portion between $500,000 and $1.5 million; 20% at $1.5 million and above.
What it means for youThe $1.5 million ceiling replaced a $1 million one in December 2024. A lot of advice still online has not caught up.
Gift letter
A signed declaration from a family member confirming that money given toward your down payment is a genuine gift with no expectation of repayment.
What it means for youThe letter is easy. Proving where the money came from is what stalls files. Season the funds early and the whole topic disappears.
Default insurance
Insurance required when your down payment is under 20%. It protects the lender, not you, and the premium is usually added to the mortgage.
What it means for youNot available at all once the purchase price reaches $1.5 million, which is why the down payment jumps to 20% there.
Amortisation
The total time to pay the mortgage off in full. Commonly 25 years; 30 is available on insured mortgages for first-time buyers and new-build purchasers.
What it means for youA longer amortisation lowers the monthly payment and the qualifying ratio. It also costs more interest over the life of the loan. Sometimes it is the difference between closing and not.
The property, and what it costs to close
Appraisal
A professional estimate of the property’s market value, ordered so the lender knows what it is lending against.
What it means for youThe lender owns the report even when you paid for it. That surprises almost everyone.
LTV (loan-to-value)
The mortgage as a percentage of the property’s value.
What it means for you80% is the practical ceiling on a normal refinance. A spousal buyout can reach 95% because it is treated as a purchase.
Equity
The share of the property you own outright: value minus everything registered against it.
What it means for youEquity sets the ceiling. Income decides whether you reach it. Those are two different questions and lenders ask both.
Closing costs
Everything the lawyer needs on closing day beyond the down payment: land transfer tax, legal fees and disbursements, title insurance, adjustments.
What it means for youNone of it can be added to the mortgage. It has to be cash, and it is the reason deals fail in the last week.
Land transfer tax
A tax paid when the property changes hands. Ontario charges it province-wide; the City of Toronto charges a second, municipal one on top.
What it means for youA Toronto condo and a Brampton townhouse at the same price do not cost the same to close. Brampton, Mississauga, Vaughan and Caledon pay the provincial tax only.
First-time buyer rebate
A refund of land transfer tax: up to $4,000 in Ontario, and up to a further $4,475 on the Toronto municipal tax.
What it means for youThe definition is stricter than people assume. You cannot have owned a home anywhere in the world, ever, and if married your spouse cannot have owned one during the marriage.
Adjustments
Reimbursing the seller for anything they prepaid past the closing date, such as property tax or condo fees.
What it means for youThe exact figure is not knowable until close to the day. That is why lawyers ask for a cushion rather than a precise amount.
Interim occupancy
On many new condos, the period between moving in and the building being registered. You pay the builder a monthly fee during it.
What it means for youNone of it pays down your mortgage, because your mortgage has not started. It is rent on a home you have bought, and it can run for months.
Development charges
Municipal charges a builder may pass on to the buyer at closing.
What it means for youWell-drafted agreements cap them. Some do not. If you do not know your cap, that is a question for your lawyer today rather than at closing.
Your contract, and what you can change
Term
The length of your current mortgage contract, commonly five years. Not the same as the amortisation.
What it means for youAt the end of the term you renew. That moment is the cheapest decision point in the whole mortgage.
Fixed rate
A rate locked for the term, so the payment does not move.
What it means for youCertainty has a price, and it shows up as the penalty if you need to break early.
Variable rate
A rate that moves with the lender’s prime rate.
What it means for youThe penalty to break is usually three months’ interest rather than an IRD, which matters more than people expect.
Prime rate
The benchmark lenders set variable rates against.
What it means for youYour variable rate is quoted as prime plus or minus a margin. The margin is yours for the term; prime is not.
Prepayment privileges
How much extra you may pay each year without penalty, and in what form.
What it means for youTwo mortgages at the same rate are not the same mortgage. This is one of the places the difference hides.
Porting
Moving your existing mortgage and rate to a new property when you move.
What it means for youUseful when you hold a rate you could not replace. The conditions are strict and the timing is tighter than people expect.
Renewal
The point where your term matures and you either sign the offer, negotiate, or move.
What it means for youIt is the one moment you can restructure with no prepayment penalty. Signing closes that window for another full term.
Switch vs refinance
A switch moves the same balance to a new lender. A refinance changes the amount.
What it means for youA straight switch at renewal is usually simple and often penalty-free. The moment you take extra money out, different rules apply.
IRD (interest rate differential)
The penalty formula for breaking a fixed mortgage early, based on the difference between your rate and current rates.
What it means for youIt can be a very large number, and it is the single most common unpleasant surprise in a refinance. Get the exact figure in writing before deciding anything.
When a bank says no
A lender
A bank or major institutional lender, lending to a narrow, well-documented profile.
What it means for youA decline is not a verdict on you. It means your file did not fit that box.
B lender
An alternative lender that assesses income more flexibly, at a higher cost than a bank.
What it means for youB lenders often assess gross income rather than the net figure on your tax return. Same returns, a completely different number.
MIC (mortgage investment corporation)
A pooled fund of private investor money that lends on mortgages, regulated as a corporation.
What it means for youNot a loan shark and not a bank. It is a different tier with different tolerances, and it should almost always be temporary.
Private mortgage
A mortgage funded by an individual or private fund, assessed mainly on equity and the property.
What it means for youShort-term money with a job to do. If nobody can explain the exit plan, it is the wrong product.
Second mortgage
A mortgage registered behind your existing first, leaving that first untouched.
What it means for youNo break, no penalty, and your existing rate is preserved. On a large low-rate first mortgage this is frequently cheaper overall despite the higher rate on the new money.
HELOC
A revolving line of credit secured against your home, drawn as needed.
What it means for youYou pay interest only on what you use. Good for staged spending, less good if the discipline is not there.
Exit plan
How and when short-term borrowing gets replaced by something cheaper.
What it means for youThe most important part of any private or second mortgage conversation, and the part most often skipped. If the exit depends on something unlikely, it is not an exit.
Lender fee and broker fee
Fees charged on alternative and private deals, usually deducted from the advance rather than paid up front.
What it means for youOn a short term, fees can matter more than the interest rate. Always compare total dollars over the same period.
Bruised credit
A credit file with late payments, collections, a consumer proposal or a bankruptcy in it.
What it means for youIt narrows the options. It does not close them, and the path back to a bank is usually shorter than people fear.
Situations that have their own rules
Spousal buyout
Refinancing to buy out a separating spouse’s share, treated by insurers as a purchase rather than a refinance.
What it means for youIt can go to 95% of value where a normal refinance stops at 80%. That is frequently the difference between keeping the house and listing it.
Co-signer and co-borrower
Someone who takes on legal responsibility for the mortgage alongside you.
What it means for youA co-signer is not a backup. They are responsible for the entire debt, not a share of it, and it sits on their credit as though it were their own mortgage.
Debt consolidation
Rolling several debts into the mortgage to produce one lower payment.
What it means for youIt works only if the arithmetic genuinely improves your position, and only if the cards stay down afterwards. Otherwise it moves the problem somewhere more expensive.
CRA arrears
Unpaid tax debt owed to the Canada Revenue Agency.
What it means for youCRA is the one debt banks will not touch, which is exactly why second and private lenders step in against equity to clear it.
Reverse mortgage
For homeowners 55 and over, a loan against the home with no required monthly payment, repaid when the home is sold or the last borrower leaves.
What it means for youThe interest compounds and it reduces what is left to your estate. For some households that is exactly the right trade. It is a conversation to have with family in the room.
Bridge financing
Short-term financing covering a gap between funds arriving and funds being needed.
What it means for youIt has a cost, and it is far cheaper than a collapsed transaction. Worth arranging before you need it, not after.
Stated income and bank statement programs
Lending programmes that assess a self-employed borrower on business deposits and history rather than only on the net figure on a tax return.
What it means for youBuilt for exactly the mismatch between good tax planning and mortgage qualification.
Requalification at closing
The lender’s final assessment of your file shortly before a purchase completes.
What it means for youOn a builder home signed two years ago, the lender approves the file that exists at closing, not the one from signing day.
Definitions are general and describe how these terms are commonly used in Ontario. Thresholds, rebate amounts and insured mortgage rules are set by government and lenders and change — position stated as at August 2026.
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