In the dynamic Toronto real estate market, understanding mortgage and real estate terminology can mean the difference between landing your dream property or missing out. Terms like ‘variable rate mortgage’, ‘amortization period’ and ‘closed mortgage’ are not just words—they’re essential tools in your real estate toolbox. These concepts are critical in helping you navigate the market, evaluate properties, negotiate the best deals, and manage your investment effectively. Knowledge of these terms not only empowers you in every step of the home-buying process but also allows you to take full advantage of Toronto’s booming market. So, whether you’re looking to buy a high-rise condo downtown or a charming townhouse in the West End, familiarizing yourself with real estate and mortgage jargon is a must. Let this language guide your Toronto real estate journey!

Amortization Period The number of years it takes to repay the entire amount of the financing based on a set of fixed payments. 

Appraisal The process of determining the market value of a property. 

Blended Payments Equal payments consisting of both interest and principal components. Typically, while the payment amount does not change, the principal portion increases, while the interest portion decreases.

Canada Mortgage and Housing Corporation (CMHC) CMHC is a federal Crown corporation that administers the National Housing Act (NHA). Among other services, they also insure mortgages for lenders that are greater than 80% of the purchase price or value of the home. The cost of that insurance is paid for by the borrower and is generally added to the mortgage amount. These mortgages are often referred to as “Hi-Ratio” mortgages.

Closed Mortgage A mortgage that cannot be prepaid or renegotiated for a set period of time without penalties.

Closing Date The date on which the new owner takes possession of the property and the sale becomes final.

Conventional Mortgage A mortgage up to 80% of the purchase price or the value of the property. A mortgage exceeding 80% is referred to as a “Hi-Ratio” mortgage and the lender will require insurance for that mortgage. 

Credit Scoring A system that assesses a borrower on a number of items, assigning points that are used to determine the borrower’s creditworthiness.

Deposit A sum of money held in trust as security for the offer to purchase. When the offer is accepted by the vendor (seller), the deposit is held in trust by the listing real estate broker, lawyer, or notary until the closing of the sale, at which point it is given to the vendor. If a house does not close because of the purchaser’s failure to comply with the terms set out in the offer, the purchaser forgoes the deposit, and it is given to the vendor as compensation for breaking the contract (the offer).

Equity The difference between the market value of the property and any outstanding mortgages registered against the property. This difference belongs to the owner of that property.

First Mortgage A debt registered against a property that has first call on that property.

Fixed-Rate Mortgage A mortgage for which the interest is set for the term of the mortgage.

Gross Debt Service Ratio (GDS) is one of the mathematical calculations used by lenders to determine a borrower’s capacity to repay a mortgage. It takes into account the mortgage payments, property taxes, approximate heating costs, and 50% of any maintenance fees, and this sum is then divided by the gross income of the applicants. 

Guarantor A person with an established credit rating and sufficient earnings who guarantees to repay the loan for the borrower if the borrower does not.

High-Ratio Mortgage A mortgage that exceeds 80% of the purchase price or appraised value of the property. This type of mortgage must be insured. Visit the CMHC’s website for a breakdown of the cost of these insurance fees

Mortgage A mortgage is a loan that uses a piece of real estate as security. Once that loan is paid-off, the lender provides a discharge for that mortgage.

Mortgagee The financial institution/person/lender who is lending the money using a mortgage.

Mortgagor The person who borrows the money from the Mortgagee.

Open Mortgage A mortgage that can be repaid at any time during the term without any penalty. For this convenience, the interest rate is typically between 0.75-1.0% higher than a closed mortgage. A good option if you are planning to sell your property or pay off the mortgage entirely.

Portable Mortgage An existing mortgage that can be transferred to a new property. One would want to port their mortgage in order to avoid any penalties, or if the interest rate is much lower than the current rates available.

Prepayment Penalty A fee charged to a borrower by the lender when the borrower prepays all or part of a mortgage over and above the amount agreed upon. Although there is no law as to how a lender can charge you the penalty, a usual charge is the greater of the Interest Rate Differential (IRD) or three months’ interest.

Prime The lowest rate a financial institution charges its best customers.

Principal The original amount of a loan, before interest.

Rate Commitment (Rate Hold) The number of days the lender will guarantee the mortgage rate on a mortgage approval. This can vary from lender to lender, anywhere from 30 to 180 days.

Term The period of time the financing agreement covers. The terms generally range from 1 year to 10 years, and the interest rates will vary based on their term one chooses.

Total Debt Service (TDS) Ratio It is the other mathematical calculation lenders use to determine a borrower’s capacity to repay a mortgage. It takes into account the mortgage payments, property taxes, approximate heating costs, 50% of any maintenance fees, and any other monthly obligations (i.e. personal loans, car payments, lines of credit, credit card debts, other mortgages, etc.), and this sum is then divided by the gross income of the applicants.

Variable Rate Mortgage A mortgage for which the interest rate fluctuates based on changes in prime.