10 Terms to Know and Understand in Your Mortgage Documents

If you're diving into the world of homeownership—or even just refinancing—chances are you’ve come across a mountain of mortgage paperwork. It can feel like learning a new language!

Here are 10 key mortgage terms every Canadian homebuyer should know. Understanding these can save you time, money, and a whole lot of stress.

1. Principal

This is the original amount you’re borrowing from the lender, not including interest. Each payment you make chips away at this balance.

2. Amortization Period

This is the total length of time it will take to pay off your entire mortgage. In Canada, it's commonly 25 or 30 years. The longer the amortization, the smaller your monthly payments—but you’ll pay more interest over time.

3. Term

Not to be confused with amortization! The term is how long your current mortgage agreement is in effect—usually 1 to 5 years. When your term ends, you can renegotiate, renew, or switch lenders.

4. Interest Rate

This is the cost of borrowing the money. You’ll see this as a percentage. It can be fixed (stays the same for the term) or variable (fluctuates with the market).

5. Fixed vs. Variable Rate

• Fixed: Your rate and payments stay the same throughout the term. Great for budgeting!

• Variable: Your rate can change with the Bank of Canada’s rate, which may lower (or increase) your payments. *Some lenders will have static payments for their variable rate mortgages and others will have adjustable monthly payments.

6. Prepayment Privileges

These let you make extra payments on your mortgage without penalty—either a lump sum or by increasing your regular payments. A great way to pay off your mortgage faster!

7. Prepayment Penalty

Paying off your mortgage early or breaking your mortgage before your term ends? Your lender might charge a penalty—usually the higher of 3 months' interest or the interest rate differential (IRD).

8. Mortgage Default Insurance

If your down payment is less than 20%, this is required (and usually through CMHC). It protects the lender if you default, and the premium is added to your mortgage balance.

9. Closing Costs

On top of your down payment, expect to pay around 1.5–4% of your home’s purchase price in closing costs. This includes legal fees, land transfer tax, title insurance, and more.

10. Portability

Buying a new home before your current mortgage term is up? Portability lets you transfer your existing mortgage rate and terms to your new home—potentially saving you from breaking your mortgage and paying penalties.

Final Thoughts

Your mortgage documents might be packed with fine print, but you don’t have to decode them alone. Whether you’re buying your first home or renewing for the fifth time, I’m here to help make sense of it all—no jargon, no stress, just solid advice and support.