Mortgage Glossary

A payment frequency where your monthly payment is divided in half and paid every two weeks. Because there are 26 two-week periods in a year — not 24 half-months — this produces the equivalent of one extra monthly payment per year. Over a 25-year mortgage, this typically shortens the amortization period by 3–4 years and saves tens of thousands of dollars in interest. Contrast with regular bi-weekly, which simply divides the annual payment obligation into 26 equal instalments without any extra payment effect. All CalcHomeRate payment calculators model both options.

A US mortgage with an interest rate that changes periodically after an initial fixed-rate period. The most common structure is the 5/1 ARM: fixed for 5 years, then adjusting annually based on a benchmark index (typically SOFR) plus a margin. ARMs are useful when a buyer plans to sell or refinance before the fixed period ends, but carry the risk of significantly higher payments if rates rise. Canadian equivalents are called variable-rate mortgages, which behave differently — typically adjusting the payment amount or the split between principal and interest while the rate changes monthly.

The process of gradually paying off a mortgage debt through regular scheduled payments over a defined period — called the amortization period. In Canada, the maximum amortization for insured mortgages (less than 20% down) is 25 years for most buyers, or 30 years for first-time buyers and new-build purchases as of December 2024. Uninsured mortgages may amortize up to 30 years. In the US, 30 years is the standard amortization for conventional mortgages; 15 years is a popular shorter option. Each payment covers interest owed on the outstanding balance plus a portion of principal. Early in the amortization, most of each payment covers interest; later payments become predominantly principal.

A standardised measure of the true cost of a US mortgage that includes not just the interest rate but also lender fees, discount points, and certain closing costs, expressed as a single annual percentage. Because APR captures fees that the interest rate alone does not, it allows meaningful comparisons between loan offers from different lenders. A loan with a 6.75% rate but high origination fees may have an APR of 7.1%, while a competing loan at 7.0% with no fees may carry an APR of 7.0%. The loan with the lower APR is typically cheaper over the full term, though for short holding periods the loan with lower upfront costs may win. Canada does not use APR in the same standardised way; Canadians compare using the quoted nominal rate and the effective annual rate derived through semi-annual compounding.

An independent professional assessment of a property's market value, conducted by a licensed appraiser on behalf of the lender. Lenders require appraisals before approving most mortgages to confirm the property is worth at least the purchase price — protecting against lending more than the collateral is worth. The appraisal fee is typically paid by the borrower. If the appraised value comes in below the agreed purchase price, the buyer must either renegotiate the price, increase the down payment to cover the gap, or walk away. In Canada, CMHC-insured mortgages require an appraisal meeting CMHC's standards.

The formal name for OSFI's Residential Mortgage Underwriting Practices and Procedures guideline — the regulatory framework that governs how federally regulated Canadian lenders must assess mortgage applications. B-20 introduced the mortgage stress test in 2018, requiring all borrowers at federally regulated lenders to qualify at the higher of their contract rate plus 2% or 5.25%, regardless of down payment size. B-20 applies to all major Canadian banks; provincial credit unions and private lenders are not subject to it and may use their own underwriting criteria.

The total of all monthly debt obligations divided by gross monthly income, expressed as a percentage. Back-end DTI includes housing costs (the front-end DTI) plus all other recurring debts: car loans, student loans, minimum credit card payments, personal loans, child support, and alimony. The conventional limit is 36%, though Fannie Mae's automated underwriting system may approve up to 45–50% for borrowers with strong compensating factors. FHA allows up to 43% back-end DTI, with automated approvals sometimes reaching 50%. Back-end DTI is almost always the binding constraint in mortgage qualification because it captures the full picture of a borrower's financial obligations.

A short-term loan used to finance the purchase of a new home before the sale of an existing home has closed. The bridge loan is secured by the equity in the existing home and is repaid in full when that home sells. Bridge loans typically carry higher interest rates than standard mortgages and come with strict repayment timelines (usually 6–12 months). They are useful in competitive markets where buyers need to act on a new purchase before their current home sells, but carry the risk of carrying two properties simultaneously if the sale is delayed.

A federal Crown corporation that provides mortgage default insurance to Canadian lenders for high-ratio mortgages (those with less than 20% down payment). CMHC insurance protects the lender — not the borrower — if the borrower defaults. The borrower pays the premium, which ranges from 2.80% to 4.00% of the insured mortgage amount depending on the down payment percentage. The premium is added to the mortgage balance, not paid in cash upfront. CMHC insurance is permanent — it cannot be removed once applied, unlike US PMI which cancels at 80% LTV. As of December 2024, CMHC-insured mortgages are available on homes priced up to $1.5 million. Two private insurers — Sagen and Canada Guaranty — offer identical coverage at the same premium rates.

A mortgage that cannot be fully repaid before the end of the term without paying a prepayment penalty. Most Canadian mortgages are closed. The penalty is typically calculated as the greater of three months' interest or the Interest Rate Differential (IRD). Closed mortgages offer lower interest rates than open mortgages in exchange for this restriction. Most closed mortgages still allow prepayment privileges — typically 15–20% of the original principal per year — without penalty. Breaking a closed mortgage early most commonly occurs when selling the property or refinancing to obtain a better rate.

All fees and expenses paid at the time of closing a real estate transaction, beyond the down payment itself. US closing costs typically total 2–5% of the purchase price and include lender origination fees, title insurance, property tax prepayment, homeowners insurance prepayment, and escrow setup. In Canada, closing costs typically run 1.5–4% of the purchase price and include legal fees, land transfer tax (or provincial equivalent), title insurance, and home inspection costs. In some provinces — Ontario, Quebec, Manitoba, and Saskatchewan — provincial sales tax on the CMHC premium must also be paid at closing (it cannot be added to the mortgage balance). Neither country's closing costs include the down payment itself.

A second borrower who applies for a mortgage alongside the primary borrower and shares equal responsibility for repayment. The co-borrower's income is included in qualifying calculations, which can increase the maximum loan amount. Unlike a co-signer, a co-borrower typically holds an ownership interest in the property. Both borrowers' credit histories and debt obligations are evaluated in the lender's underwriting process. Co-borrowers appear on the mortgage note and the deed to the property.

A person who guarantees a mortgage alongside the primary borrower but does not hold an ownership interest in the property. Co-signers are typically used when the primary borrower's income or credit score is insufficient to qualify alone. The co-signer is equally liable for the debt if the primary borrower defaults, and the mortgage appears on the co-signer's credit report, affecting their own borrowing capacity. Distinct from a co-borrower, who holds an ownership stake in the property.

A US mortgage that meets the standards set by the Federal Housing Finance Agency (FHFA) and can be purchased by Fannie Mae or Freddie Mac. In 2026, the conforming loan limit is $832,750 for single-family homes in most counties. Loans above this threshold are jumbo loans. Conforming loans typically carry lower interest rates and more flexible qualifying criteria than jumbo loans because the lender can sell the loan to Fannie Mae or Freddie Mac, reducing their balance-sheet risk. High-cost areas in California, New York, and Hawaii have higher conforming limits up to $1,249,125 in 2026.

In Canada, a mortgage with a down payment of 20% or more of the purchase price. Because the loan-to-value ratio is 80% or less, CMHC insurance is not required. Conventional mortgages in Canada can amortize up to 30 years (compared to the 25-year maximum for insured mortgages for most buyers) and can be used for properties above $1.5 million. In the US, a conventional mortgage is any loan not backed by a government agency — i.e., not an FHA, VA, or USDA loan. US conventional loans may require only 3–5% down (with PMI) and are purchased by Fannie Mae or Freddie Mac if they meet conforming loan standards.

The asset pledged as security for a loan. In a mortgage, the collateral is the property itself. If the borrower defaults on the mortgage, the lender has the legal right to seize and sell the property to recover the outstanding debt — a process called foreclosure in the US and power of sale in most Canadian provinces. The collateral limits the lender's risk, which is why mortgages typically carry lower interest rates than unsecured loans such as credit cards.

The primary qualifying measure used by US mortgage lenders, calculated as total monthly debt obligations divided by gross monthly income. US lenders evaluate two DTI ratios simultaneously: the front-end DTI (housing costs only) and the back-end DTI (all recurring debts). The Canadian equivalent is the combination of GDS and TDS ratios. DTI does not appear directly in Canadian mortgage qualifying, which instead uses the GDS/TDS framework with the added layer of the stress test.

The portion of the purchase price paid in cash at closing, not financed by the mortgage. A larger down payment reduces the loan amount, the monthly payment, and — in both countries — the mortgage insurance costs. In Canada, the minimum down payment is 5% on the first $500,000 of purchase price and 10% on any portion between $500,000 and $1,500,000; properties above $1.5 million require 20% down. In the US, minimum down payment depends on loan type: 0% for VA and USDA loans, 3.5% for FHA, 3–5% for conventional loans. Both countries require 20% down to avoid mandatory mortgage insurance.

Failure to meet the terms of a mortgage agreement, most commonly by missing scheduled payments. A borrower is typically considered in default after missing 90 days of payments, though the exact timeline varies by lender and jurisdiction. Default triggers the lender's right to begin legal proceedings to recover the outstanding debt — through foreclosure in the US or power of sale in most Canadian provinces. Mortgage default insurance (CMHC in Canada, FHA MIP or PMI in the US) protects the lender against losses from default, but does not protect the borrower from credit damage or loss of the property.

Upfront fees paid at closing to permanently reduce (buy down) the interest rate on a US mortgage. One point equals 1% of the loan amount. Typically, each point purchased reduces the rate by 0.25%, though this varies by lender and market conditions. Paying points makes economic sense if the monthly interest savings over the expected holding period exceed the upfront cost. The break-even point can be calculated: if one point on a $400,000 loan ($4,000) saves $50/month in interest, the break-even is 80 months. Buying points is most beneficial when rates are high, the borrower has the cash, and they plan to stay in the home long-term.

The portion of a property's current market value that the owner actually owns, calculated as property value minus outstanding mortgage balance. Equity builds in two ways: through regular mortgage payments that reduce the outstanding principal, and through property value appreciation. A home purchased for $600,000 with a 10% down payment starts with $60,000 in equity (10% of value). As the mortgage is paid down and the property appreciates, equity grows. Equity is accessed through home equity loans, home equity lines of credit (HELOCs), or by selling the property. For US borrowers, reaching 20% equity (or 80% LTV) is significant because it triggers the right to cancel PMI.

A neutral third-party account used in US real estate transactions to hold funds and documents until all conditions of the purchase are met. At closing, escrow accounts are also set up to collect monthly amounts for future property taxes and homeowners insurance. The lender manages these escrow collections (which form part of the monthly PITI payment) and pays the tax and insurance bills directly when due. This protects the lender's collateral by ensuring the property stays insured and taxes remain current. Escrow in the Canadian context refers primarily to the transaction closing process managed by real estate lawyers or notaries; separate monthly tax reserve accounts are not standard practice.

Two government-sponsored enterprises (GSEs) that form the backbone of the US secondary mortgage market. Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) purchase conforming mortgages from lenders, bundle them into mortgage-backed securities, and sell them to investors. This process returns capital to lenders, allowing them to make more loans. Because lenders know Fannie Mae and Freddie Mac will buy qualifying loans, they can offer lower rates on conforming loans than on jumbo loans that must remain on the lender's balance sheet. Canada has no direct equivalent; CMHC plays a different role through mortgage insurance and Canada Mortgage Bonds.

A US mortgage insured by the Federal Housing Administration (FHA), part of HUD, allowing buyers to purchase with as little as 3.5% down and a minimum credit score of 580 (10% down required for scores 500–579). FHA loans charge two insurance premiums: an upfront MIP (mortgage insurance premium) of 1.75% of the loan amount, and an annual MIP of 0.55% for most standard loans after HUD's March 2023 rate reduction. FHA MIP cannot be cancelled on loans with less than 10% down — it remains for the life of the loan. The 2026 FHA loan limit ranges from $541,287 (floor) to $1,249,125 (high-cost areas ceiling), based on the $832,750 conforming loan limit. FHA is available to both first-time and repeat buyers for primary residences only.

A registered account introduced in Canada in 2023 that allows first-time home buyers to contribute up to $8,000 per year (lifetime maximum $40,000) for a qualifying home purchase. Contributions are tax-deductible (like an RRSP), investment growth is tax-free (like a TFSA), and qualifying withdrawals for a first home are not taxed. The FHSA does not require repayment, unlike the RRSP Home Buyers' Plan. A first-time buyer couple can combine their FHSAs for up to $80,000 in tax-advantaged savings toward a down payment, potentially stacked with the HBP for an even larger combined contribution.

A mortgage where the interest rate remains constant for the entire term (in the US) or the selected term (in Canada). In the US, a 30-year fixed mortgage maintains the same rate and payment for all 360 payments. In Canada, "fixed" means fixed for the mortgage term — typically 5 years — after which the mortgage renews at the prevailing rate. Canadian 5-year fixed rates are the most common mortgage product in Canada. Fixed-rate mortgages provide payment certainty and protection against rising rates, but typically carry slightly higher initial rates than variable-rate or adjustable-rate alternatives.

Housing costs only divided by gross monthly income, expressed as a percentage. Housing costs for front-end DTI purposes include the mortgage principal and interest payment, property taxes, and homeowners insurance — collectively called PITI — plus any HOA fees. The conventional limit is 28%; FHA allows 31%. Because the front-end DTI captures only housing costs while the back-end DTI captures all debts, the front-end constraint is often less binding. The Canadian equivalent is the GDS ratio, which also includes heat costs in its numerator.

The percentage of gross household income consumed by housing costs, used by Canadian lenders to assess mortgage affordability. Housing costs in the GDS ratio include: mortgage payment (principal and interest), property taxes, heat costs, and 50% of strata or condo fees if applicable. The maximum GDS under OSFI's B-20 guideline is 39%. For example, a household earning $8,000/month gross cannot have combined housing costs exceeding $3,120/month. GDS is always evaluated alongside TDS, and both must be within their limits simultaneously. The US equivalent is the front-end DTI, which uses a similar structure but excludes heat costs.

A person who agrees to repay a borrower's mortgage debt if the borrower defaults, without holding an ownership interest in the property. A guarantor differs from a co-borrower in that the guarantor is not a primary party to the mortgage and is only called upon if the borrower fails to make payments. Guarantors face the same credit and financial scrutiny as primary borrowers. The mortgage typically appears on the guarantor's credit report and counts against their own debt obligations, potentially limiting their ability to take on other loans.

A Canadian mortgage where the borrower's down payment is less than 20% of the purchase price, resulting in a loan-to-value ratio above 80%. High-ratio mortgages require mandatory CMHC (or Sagen/Canada Guaranty) mortgage default insurance. The insured status of the loan typically entitles the borrower to slightly lower interest rates than conventional (uninsured) mortgages, because lenders face reduced default risk. High-ratio mortgages in Canada are limited to properties priced below $1.5 million (as of December 2024) and are subject to the 25-year maximum amortization (30 years for first-time buyers and new-build purchasers).

A Canadian government program allowing first-time home buyers to withdraw up to $60,000 (as of 2024) from their Registered Retirement Savings Plan (RRSP) tax-free for a qualifying home purchase. A couple where both partners qualify can each withdraw $60,000, for a combined total of $120,000. The withdrawn amount must be repaid to the RRSP over a maximum of 15 years, with repayment starting the second year after withdrawal; failure to repay adds the required amount to taxable income. The HBP can be combined with the FHSA for maximum down payment impact. Unlike FHSA withdrawals, HBP withdrawals must eventually be repaid — they are effectively an interest-free loan from your own retirement savings.

A Canadian mortgage backed by government-approved default insurance from CMHC, Sagen, or Canada Guaranty. Insurance is mandatory when the down payment is less than 20%. Insured mortgages benefit from lower interest rates (because lenders face reduced default risk) but are subject to the 25-year amortization maximum for most buyers (30 years for first-time buyers and new-build purchases), the $1.5 million purchase price cap, and the OSFI stress test. The insured mortgage framework allows more Canadians to enter homeownership earlier than if a 20% down payment were required, at the cost of the insurance premium.

A prepayment penalty calculation used by Canadian lenders when a borrower breaks a closed fixed-rate mortgage early. The IRD is calculated as the difference between the original mortgage rate and the current rate for a term matching the remaining time on the mortgage, multiplied by the outstanding balance and the remaining term in years. The penalty is the greater of the IRD or three months' interest. In falling-rate environments, IRD penalties can be extremely large — sometimes tens of thousands of dollars — because the difference between the original high rate and the current lower rate is wide. Always calculate the IRD penalty before deciding to refinance.

The cost of borrowing money, expressed as a percentage of the outstanding loan balance. Mortgage interest is calculated differently in Canada and the US: in Canada, interest compounds semi-annually under the Interest Act (Canada), meaning the effective annual rate is derived as (1 + nominal rate ÷ 2)² − 1. In the US, mortgage interest compounds monthly, and the monthly payment uses a rate of the annual rate ÷ 12. At the same nominal rate, Canadian semi-annual compounding produces a slightly lower effective monthly payment than US monthly compounding. The CalcHomeRate calculators automatically apply the correct compounding method for each country.

As of December 15, 2024, the maximum purchase price for a CMHC-insured (high-ratio) mortgage in Canada is $1,500,000. Prior to this change, the limit was $1,000,000. Properties priced at or above $1,500,000 require a full 20% down payment and cannot use mortgage default insurance. This change particularly helps buyers in high-cost markets like Greater Vancouver and the Greater Toronto Area, where homes between $1 million and $1.5 million had previously required the full 20% down payment. A buyer purchasing a $1,499,999 home can qualify with as little as $125,000 down (approximately 8.3% using the tiered down payment formula), whereas a $1,500,000 home requires $300,000 down (20%).

A US mortgage that exceeds the conforming loan limit set by the FHFA — $832,750 in most counties in 2026. Because jumbo loans exceed the limits for Fannie Mae and Freddie Mac purchase, they remain on the lender's balance sheet and typically carry stricter qualifying requirements: lower back-end DTI limits (often 43–45%), higher minimum credit scores (720+), larger down payments (typically 10–20%), and greater cash reserves. Jumbo loan rates may be slightly higher or lower than conforming rates depending on market conditions, since they are priced based on the lender's own risk appetite rather than secondary market standards.

A provincial and sometimes municipal tax paid by the buyer when ownership of real property transfers. Most Canadian provinces impose a land transfer tax calculated as a percentage of the purchase price, with rates typically ranging from 0.5% to 2.5% depending on the province and purchase price tier. Ontario and British Columbia levy the highest rates and also apply an additional non-resident speculation tax in some areas. Toronto has its own municipal land transfer tax on top of Ontario's provincial tax. Alberta and Saskatchewan do not charge a land transfer tax (they charge a smaller title transfer fee instead). First-time home buyers receive full or partial rebates in Ontario, BC, and Prince Edward Island.

The ratio of the mortgage loan amount to the appraised value of the property, expressed as a percentage. LTV = (loan amount ÷ property value) × 100. A $360,000 mortgage on a $400,000 home has an LTV of 90%. LTV is a core measure of lender risk: higher LTV means less equity cushion and higher default risk. In Canada, LTV above 80% triggers mandatory CMHC insurance. In the US, LTV above 80% on conventional loans triggers PMI requirements. PMI can be cancelled when LTV reaches 80% (borrower request) or 78% (automatic). As a property appreciates, LTV decreases even without principal payments — which is why some borrowers request a new appraisal to demonstrate an improved LTV and remove PMI early.

The financial institution or individual that provides mortgage funds to a borrower in exchange for the promise to repay with interest, secured by the property. In Canada, mortgage lenders include Schedule A and B banks, credit unions, trust companies, mortgage investment corporations (MICs), and private lenders. The major banks are all federally regulated and subject to OSFI guidelines. Credit unions are provincially regulated and are not subject to OSFI's stress test requirements, which sometimes allows more flexible qualifying. In the US, lenders include banks, credit unions, mortgage banks, and non-bank lenders like Rocket Mortgage. US lenders often sell their loans to Fannie Mae or Freddie Mac after origination.

The mortgage insurance charged on FHA loans, distinct from the PMI charged on conventional loans. FHA MIP has two components: an upfront MIP (UFMIP) of 1.75% of the loan amount, typically added to the loan balance rather than paid in cash; and an annual MIP charged monthly. For standard 30-year FHA loans with less than 10% down, the annual MIP is 0.55% after HUD's March 2023 rate reduction. Unlike PMI on conventional loans, FHA MIP with less than 10% down cannot be cancelled — it continues for the full life of the loan. With 10% or more down, FHA MIP automatically cancels after 11 years. This permanence is the primary reason borrowers with good credit scores may prefer conventional loans with PMI over FHA loans in the long run.

Insurance that protects the lender (not the borrower) against losses if the borrower defaults. Despite who it protects, the cost is borne by the borrower. In Canada, mortgage default insurance is provided by CMHC, Sagen, or Canada Guaranty when the down payment is less than 20%. In the US, mortgage insurance takes the form of PMI on conventional loans and MIP on FHA loans. VA and USDA loans have no traditional mortgage insurance — VA charges a funding fee instead, and USDA charges a guarantee fee. All forms of mortgage insurance exist because down payments of less than 20% represent meaningfully higher default risk to lenders.

Canada's federal qualifying rule requiring all borrowers at federally regulated lenders to demonstrate they can afford their mortgage payments at a rate higher than their actual contract rate. The qualifying rate is the greater of the contract rate plus 2%, or 5.25%. If a borrower obtains a 4% mortgage, they must qualify at 6%. As of November 21, 2024, the stress test no longer applies when uninsured borrowers switch lenders at renewal, provided the loan amount and amortization remain unchanged — giving borrowers full freedom to shop for better renewal rates. The stress test still applies to new mortgages, refinances, and amortization extensions. It does not apply to credit unions or private lenders.

In Canada, the mortgage term is the length of the current mortgage contract, after which the mortgage must be renewed (with the same or a different lender), paid off, or refinanced. Terms range from 6 months to 10 years, with the 5-year fixed rate being the most common. The term is distinct from the amortization period — a 25-year amortization mortgage typically renews every 5 years, so the borrower renegotiates the interest rate approximately 5 times over the life of the loan. In the US, "term" usually refers to the entire loan duration (30-year term, 15-year term) because US fixed-rate mortgages lock in the rate for the full amortization period.

The standard mortgage payment made once per month covering principal repayment and interest, with property taxes and insurance sometimes included (PITI in the US). The monthly payment is calculated using the annuity formula: P × r / (1 − (1 + r)^−n), where P is the loan amount, r is the monthly rate, and n is the total number of payments. In Canada, the monthly rate is derived from the semi-annual compounding formula; in the US, the monthly rate is simply the annual rate divided by 12. The monthly payment remains constant throughout the term for fixed-rate mortgages, even as the split between principal and interest gradually shifts toward more principal over time.

A Canadian mortgage that can be repaid partially or fully at any time without penalty. Open mortgages provide maximum flexibility — ideal for borrowers who expect to sell, receive a large lump sum, or need to refinance before their term ends. The trade-off is a significantly higher interest rate, typically 1–2% above comparable closed mortgage rates. Open mortgages are commonly used as a bridge financing tool or during periods of unusual financial uncertainty. Most Canadian homeowners choose closed mortgages and use the annual prepayment privilege (typically 15–20% of the original principal) for extra payments without triggering penalties.

Canada's federal banking regulator, responsible for supervising all federally regulated financial institutions including the major banks. OSFI's Guideline B-20 sets the residential mortgage underwriting standards that all federally regulated lenders must follow, including the mortgage stress test. OSFI also sets the minimum qualifying rate (MQR) of 5.25% and monitors emerging risks in the mortgage market. OSFI's oversight does not extend to provincially regulated credit unions, trust companies, or private lenders. Canada has no direct US equivalent to OSFI's B-20 mortgage stress test — US mortgage qualification is governed by individual lender standards and secondary market rules (Fannie Mae/Freddie Mac guidelines), not a federal qualifying rate floor.

A fee charged by a US lender for processing and creating a new mortgage, typically expressed as a percentage of the loan amount (usually 0.5–1%) or as a flat dollar amount. Origination fees are included in APR calculations and in the closing costs disclosed on the Loan Estimate. Some lenders advertise "no-origination-fee" loans, but these typically carry higher interest rates to compensate. In Canada, major bank lenders rarely charge origination fees for residential mortgages; mortgage broker commissions are paid by the lender, not the borrower, in most cases.

Insurance required on US conventional loans when the down payment is less than 20%. PMI protects the lender against default losses; the borrower pays the premium. PMI rates range from 0.46% to 1.50% of the loan amount annually, depending on the LTV, credit score, and PMI provider. PMI can be cancelled when the loan balance reaches 80% of the original purchase price (borrower request) or 78% (automatic, per the Homeowners Protection Act of 1998). Unlike Canadian CMHC insurance which is permanent, US PMI cancels once sufficient equity is built. The Canadian equivalent of PMI is CMHC mortgage default insurance, though the two have significant structural differences.

A Canadian mortgage feature that allows the borrower to transfer an existing mortgage, including its outstanding balance and interest rate, to a newly purchased property when selling the current home. Portability is valuable when the existing rate is lower than current market rates, allowing the borrower to preserve the advantageous rate rather than paying an early termination penalty and taking a new mortgage at higher current rates. The new property must meet the lender's requirements, and if a larger mortgage is needed, the additional amount is typically blended at the current rate.

A conditional commitment from a lender confirming the maximum mortgage amount a buyer qualifies for, based on a preliminary review of income, assets, credit history, and (in Canada) the stress test. Pre-approval typically locks in the interest rate for 60–120 days, protecting the buyer against rate increases while they search for a home. Pre-approval is stronger than a pre-qualification (which is an informal estimate without document verification). A pre-approval letter is typically required by sellers and agents in competitive markets before offers will be accepted. Pre-approval does not guarantee final mortgage approval — full underwriting and property appraisal still occur after an offer is accepted.

The contractual right to make extra mortgage payments beyond the regular scheduled payments without triggering a prepayment penalty, even on a closed mortgage. Typical Canadian prepayment privileges allow 15–20% of the original principal to be paid off per year as a lump sum, plus an option to increase the regular payment by 15–20% annually. Maximising prepayment privileges is the most efficient way to reduce total interest paid and shorten the amortization period on a closed mortgage. The accelerated bi-weekly payment strategy is effectively a built-in use of the prepayment privilege spread evenly through the year.

The outstanding loan balance — the amount actually borrowed and still owed, excluding interest. Each mortgage payment consists of an interest component and a principal component. The interest portion is calculated as the outstanding principal multiplied by the monthly rate. The remainder of the payment goes toward reducing the principal. In early mortgage payments, the interest portion dominates; over time, as principal is reduced through each payment, the interest portion decreases and the principal component grows. This pattern is called negative amortization in reverse — regular amortization means the principal consistently shrinks with each payment.

Replacing an existing mortgage with a new one, typically to secure a lower interest rate, access accumulated equity as cash, change the amortization period, or switch from a variable to fixed rate. In the US, refinancing is straightforward when done at lower rates — the break-even analysis compares closing costs against monthly savings. In Canada, refinancing before the end of the mortgage term triggers the IRD prepayment penalty on closed mortgages, which must be weighed against the benefit of the new rate. Canadian borrowers are generally limited to refinancing up to 80% of the property's appraised value (a conventional mortgage ceiling).

The process of renegotiating or transferring a Canadian mortgage at the end of its term. At renewal, the outstanding balance, amortization period, payment frequency, and interest rate are all renegotiated. Borrowers may stay with their current lender at the offered renewal rate or transfer to another lender offering better terms. As of November 21, 2024, uninsured borrowers switching lenders at renewal with the same loan amount and amortization no longer need to requalify under the OSFI stress test, making it easier to shop for competitive renewal rates. Canada's major renewal wave — over one million mortgages renewing in 2025–2026 — has increased focus on renewal strategies.

See Home Buyers' Plan (HBP). The HBP was increased from $35,000 to $60,000 per person in the federal Budget of April 2024, effective April 16, 2024. The withdrawal must be repaid to the RRSP over 15 years beginning the second year after withdrawal. Unlike the FHSA, which provides a straightforward tax-free gift for home purchases, the HBP is an interest-free loan from your own future retirement savings that must eventually be returned.

One of the two private mortgage default insurers in Canada, alongside Canada Guaranty. Sagen provides the same mortgage default insurance product as CMHC — protecting lenders against borrower default on high-ratio mortgages — at identical premium rates. The borrower's lender chooses which insurer to use; the premium rates and product terms are functionally identical across all three insurers. Sagen has no practical impact on the borrower's mortgage terms, payments, or recourse options in the event of default. The existence of private insurers alongside the Crown corporation adds competitive discipline to the mortgage insurance market.

The legally required method of calculating interest on Canadian mortgages, established by Section 10 of the Interest Act (Canada). Under semi-annual compounding, interest compounds twice per year — not monthly as it does in the US. To find the monthly payment, the annual quoted rate must first be converted to an Effective Annual Rate (EAR) using EAR = (1 + r/2)² − 1, then converted to a monthly rate using monthly rate = (1 + EAR)^(1/12) − 1. At the same nominal rate, Canadian semi-annual compounding produces slightly lower monthly payments than US monthly compounding, because the interest compounds less frequently. The difference grows with loan size — on a $500,000 mortgage at 5%, the correct Canadian formula produces a payment approximately $20–$30 lower per month than the US-style formula.

An additional mortgage registered against a property that already has an existing mortgage, subordinate in priority to the first mortgage. If the borrower defaults and the property is sold, the first mortgage lender is paid in full before the second mortgage lender receives anything. Because of this subordinated position, second mortgages carry higher interest rates to compensate for the increased risk. Common uses include accessing home equity without refinancing the existing first mortgage, financing renovations, or consolidating higher-interest debt. Home equity loans and some HELOCs are structured as second mortgages. In Canada, second mortgages from private lenders often carry rates of 8–12% or higher.

The percentage of gross household income consumed by all debt obligations, used alongside GDS in Canadian mortgage qualification. The TDS ratio includes everything in the GDS ratio (housing costs) plus all other recurring debt payments: car loans, student loans, minimum credit card payments, personal loans, and any other financed obligations. The maximum TDS under OSFI's B-20 guideline is 44%. Both GDS and TDS must be within their respective limits simultaneously — a borrower can fail TDS even if their housing costs alone are within the 39% GDS limit. The Canadian TDS ratio is functionally equivalent to the US back-end DTI, though the GDS/TDS framework includes heat costs that the US DTI framework does not.

The legal record of ownership of a property. Having clear title means the seller has the undisputed legal right to transfer ownership, free of liens, encumbrances, or competing claims. Title searches are conducted before closing to verify clear title. Title insurance protects the buyer and lender against losses from undiscovered title defects — such as previously unrecorded liens, forgery, or errors in public records. Title insurance is mandatory for lenders in both countries and is strongly recommended for buyers. In Canada, title is registered with the provincial land registry system; in most US states, it is recorded at the county courthouse.

The two standard amortization options for US fixed-rate mortgages. The 30-year mortgage produces a lower monthly payment but results in significantly more total interest paid — on a $400,000 loan at 6.75%, the total interest over 30 years is approximately $533,880. The 15-year mortgage carries a lower interest rate (typically 0.50–0.75% lower) and produces dramatically lower total interest — approximately $207,680 at 6.00% on the same loan — but requires a higher monthly payment (approximately $782/month more). The 15-year saves approximately $326,200 in total interest on this example. The 30-year loan with disciplined extra payments is a popular middle-ground strategy, providing payment flexibility while potentially achieving 15-year payoff speed.

The process by which a lender evaluates the risk of a mortgage application and decides whether to approve it, and on what terms. Underwriters review the borrower's income documentation, employment history, credit report and score, assets, liabilities, and the property appraisal. They verify that the application meets all lender and regulatory requirements — including the stress test in Canada, and DTI limits in the US. Many lenders now use automated underwriting systems (AUS) for initial decisions, with manual review reserved for complex or borderline applications. Underwriting is the final substantive step before mortgage approval and closing.

The upfront component of FHA mortgage insurance, charged as 1.75% of the base loan amount on all FHA loans. UFMIP is almost universally added to the loan balance rather than paid in cash at closing. On a $400,000 FHA loan, the UFMIP is $7,000, making the actual financed amount $407,000. This upfront cost is a significant structural disadvantage of FHA versus conventional loans, which have no equivalent upfront mortgage insurance charge. The UFMIP is partially refundable if the FHA loan is refinanced to another FHA loan within three years of origination.

A US mortgage guaranteed by the United States Department of Agriculture for properties in eligible rural and suburban areas, requiring no down payment (0%). USDA loans have household income limits (typically 115% of area median income) and property location requirements verified through the USDA eligibility map — many suburban areas qualify despite not being traditionally rural. Instead of PMI, USDA loans charge an upfront guarantee fee of 1.00% of the loan amount (added to the balance) and an annual fee of 0.35% charged monthly. USDA interest rates are typically competitive with conventional rates. The 0% down requirement makes USDA loans one of the most accessible mortgage products for income-qualifying buyers in eligible areas.

A US mortgage guaranteed by the Department of Veterans Affairs, available to active-duty service members, veterans with honourable discharge, and eligible surviving spouses. VA loans require no down payment (0%), have no mortgage insurance requirement, and typically carry competitive interest rates. Instead of PMI, VA loans charge a one-time VA funding fee: 2.15% for first-time use with no down payment (added to loan balance), or 1.25% with 10%+ down. Veterans receiving VA disability compensation of any amount are exempt from the funding fee. There is no VA loan limit for borrowers with full entitlement — the maximum loan amount is determined solely by the borrower's income and the lender's DTI requirements.

A Canadian mortgage where the interest rate fluctuates with changes in the lender's prime rate, which moves in response to the Bank of Canada's overnight rate. Variable-rate mortgages are expressed as prime plus or minus a spread (e.g., "prime − 0.80%"). When prime rises, either the monthly payment increases (adjustable variable) or the payment stays the same but more of it goes to interest and less to principal — potentially extending the amortization (static-payment variable). Variable rates have historically provided lower average costs than fixed rates over the long run, but with significant risk of payment increases if rates rise sharply. The US equivalent for adjustable rates is the ARM, which behaves differently — resetting based on an index rate on a schedule, rather than continuously with the prime rate.