A
- Amortization
- The process of paying off a loan through regular scheduled payments over time. Each payment covers the interest due and reduces the principal balance. A 25-year amortization means the loan is fully paid after 25 years of regular payments. See our guide to amortization schedules.
- Amortization Period
- The total length of time to fully pay off your mortgage. Common periods are 20, 25, or 30 years. A shorter amortization period means higher monthly payments but far less total interest paid.
- Annual Percentage Rate (APR)
- The total yearly cost of your mortgage expressed as a percentage, including both the interest rate and most fees. APR is always higher than the stated interest rate and is useful for comparing offers from different lenders.
B
- Balance (Remaining)
- The outstanding amount you still owe on your mortgage at any given point in time. Also called the outstanding principal. This is the number shown in the last column of an amortization schedule.
- Break-Even Point
- In the context of refinancing, the number of months it takes for your accumulated monthly savings to equal your closing costs. If your break-even is 36 months and you plan to stay for 7 more years, refinancing saves you money. Use our Refinance Calculator to find yours.
- Bi-Weekly Payments
- A payment schedule where you pay half your monthly mortgage amount every two weeks — resulting in 26 half-payments (13 full payments) per year instead of 12. This extra payment each year can shorten a 25-year mortgage by 2–3 years.
C
- Closed Mortgage
- A mortgage with restrictions on prepayment. You can usually make extra payments up to a certain annual limit (typically 10–20% of the original principal) but paying off the full balance early triggers a prepayment penalty.
- Closing Costs
- Fees paid when finalizing a mortgage or refinance, including legal fees, appraisal fees, title insurance, and lender fees. Typically 1–3% of the loan amount. In a refinance, these costs must be recovered through monthly savings before refinancing becomes profitable.
- Compound Interest
- Interest calculated on both the principal and the previously accumulated interest. Mortgages in Canada compound semi-annually (twice per year), which affects how the monthly rate is calculated compared to simple annual rate division.
D
- Down Payment
- The amount you pay upfront when purchasing a home. The remainder is financed through your mortgage. In Canada, a minimum 5% down payment is required for homes under $500,000; 20% down avoids mandatory mortgage default insurance.
- Default
- Failure to make scheduled mortgage payments. After a defined period of non-payment, a lender can begin foreclosure proceedings to recover the property.
E
- Equity
- The portion of your home's value that you own outright. Calculated as: Home Value − Remaining Mortgage Balance. For example, a $700,000 home with a $450,000 balance means $250,000 in equity. Equity grows as you pay down your mortgage and as property values rise.
- Extra Payment
- Any payment above your required minimum mortgage payment. Extra payments reduce your principal balance directly, lowering future interest charges and shortening your loan term. See the Extra Payment Calculator to model the impact.
F
- Fixed-Rate Mortgage
- A mortgage where the interest rate stays constant for the entire term or a set period. Your monthly payment never changes, making budgeting predictable. Fixed rates are typically higher than variable rates at the time of signing but protect against rate increases.
- Front-Loading
- The effect where early mortgage payments consist mostly of interest rather than principal. Because interest is calculated on the outstanding balance, payments are "front-loaded" with interest when the balance is highest. This is why extra payments made early in your term save the most money.
H
- Home Equity Line of Credit (HELOC)
- A revolving line of credit secured against your home equity, typically up to 65–80% of the home's value minus your mortgage balance. Offers flexibility but carries variable interest rates and requires discipline to avoid eroding the equity you've built.
I
- Interest Rate
- The percentage of your outstanding balance charged annually by the lender as the cost of borrowing. On a $500,000 mortgage, a 6% rate = $30,000 in interest in year 1 (before principal reduces the balance). Even a 0.5% rate difference saves tens of thousands over a 25-year term.
- Interest-Only Mortgage
- A mortgage where payments cover only the interest owed, with no reduction in principal. The balance never decreases. Uncommon for residential mortgages in Canada and typically only used in commercial or bridge financing.
L
- Lump-Sum Prepayment
- A one-time extra payment made directly against your mortgage principal, separate from your regular scheduled payments. Most closed mortgages allow annual lump-sum prepayments of 10–20% of the original principal without penalty.
- LTV (Loan-to-Value Ratio)
- Your mortgage balance divided by your home's appraised value, expressed as a percentage. A $400,000 balance on a $500,000 home = 80% LTV. Lenders use LTV to assess risk; higher LTV typically means higher rates and may require mortgage default insurance.
M
- Mortgage Term
- The length of time your current mortgage contract is in effect — typically 1 to 5 years in Canada. At the end of the term, you renew, refinance, or pay off the balance. Not to be confused with the amortization period, which is the total loan length.
- Mortgage Default Insurance (CMHC)
- Insurance required in Canada when your down payment is less than 20% of the purchase price. It protects the lender (not you) if you default. The premium is 2.8–4.0% of the mortgage amount and is typically added to the loan balance.
O
- Open Mortgage
- A mortgage that allows prepayment of any amount at any time without penalty. Open mortgages typically carry higher interest rates than closed mortgages in exchange for this flexibility. Useful if you expect to sell or pay off the mortgage soon.
P
- Principal
- The original amount borrowed, or the remaining balance owed on the loan excluding interest. When you make a mortgage payment, part goes to interest and part reduces the principal. Extra payments go directly to principal.
- Prepayment Penalty
- A fee charged by lenders when you pay off more than your allowed prepayment limit. For fixed-rate closed mortgages, this is typically the greater of 3 months' interest or the Interest Rate Differential (IRD). Always check before making large extra payments.
- Prepayment Privileges
- The rights granted in your mortgage contract to make extra payments without penalty. Common privileges include increasing your regular payment by up to 20% annually and making annual lump-sum prepayments of up to 20% of the original principal.
R
- Refinancing
- Replacing your existing mortgage with a new one — typically to get a lower interest rate, change the term, or access equity. Refinancing comes with closing costs (1–3% of the balance) that must be recovered through monthly savings. See our guide on when to refinance.
- Renewal
- At the end of your mortgage term, you negotiate new terms with your current lender or switch to a new lender. Renewal is different from refinancing — renewal keeps the same principal balance, while refinancing involves paying out the old mortgage and registering a new one.
T
- Title
- Legal ownership of a property. When you buy a home, title is transferred to you and your mortgage is registered against the title as a lien. Title insurance protects against defects in the property's ownership history.
- Total Interest Paid
- The sum of all interest payments made over the life of the mortgage. For a $500,000 loan at 6.25% over 25 years, total interest exceeds $490,000 — nearly equal to the original loan. This number is why paying off your mortgage early is so powerful.
V
- Variable-Rate Mortgage
- A mortgage where the interest rate fluctuates with the lender's prime rate, which is influenced by the Bank of Canada's overnight rate. Monthly payments may stay the same (with the principal/interest split changing) or may adjust with the rate. Lower rates in stable environments but more risk when rates rise.
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