Mortgage Basics in Canada: Terms Every Buyer Should Know

A mortgage is a loan secured by your property. When you buy a home, you contribute a down payment and borrow the rest from a lender. That borrowed amount is the principal. Over time, you repay the principal plus interest, which is the cost of using the bank's money.

Most Canadian mortgages are broken into two time concepts. The amortization period is the total time it would take to pay off the mortgage if you kept the same payment schedule, often 25 or 30 years. The term is the length of your current rate agreement, usually 1 to 5 years. At the end of each term, you renegotiate your rate or move to another lender, but the amortization clock keeps running.

You'll usually choose between fixed and variable rates. Fixed rates give you payment stability, while variable rates can move up or down with the Bank of Canada. Mortgages can also be open or closed. Closed mortgages typically have lower rates but penalties if you break the contract early, while open mortgages allow more flexibility at a higher rate.

Finally, you'll see acronyms like LTV (loan to value) and GDS/TDS (debt ratios) on your pre-approval. These measure how large your loan is relative to the property and how much of your income is going toward debt. Lenders use them to decide how comfortable they are approving your file.