Mortgage Terminology Explained

Posted On Mar 09, 2026

Mortgage Terminology Explained: Your Guide to Understanding Home Financing Lingo

Fixed vs variable rates: When you get a mortgage, you can choose between a rate that’s the same every payment (fixed), or a rate that changes based on the current market rate (variable). A fixed rate means every payment you make during the agreement is the exact same – great for budgeting. A variable rate means you might pay more or pay less depending on the policy rate set by the Bank of Canada. I’m happy to go into more detail in another email on when/why this would be good or bad – just let me know if you want that info!

Term: The amount of time that the rate and payments you agree to are set for is called the term. In Canada, the standard offerings are 1, 2, 3 and 5 years – although there are exceptions. Typically, if rates are low, you sign for a longer term (5 years). Conversely, if rates are high, you sign for a shorter term (1 or 2 years) in hopes that rates will come down by the end of your term. You’ll want to consider what your personal 5-year plan is as well to see if you want a longer commitment.

Amortization: This is the total amount of time it will take you to pay off your mortgage in full. In Canada, the traditional amount of time was 25 years, however there are circumstances where you can extend to 30 years. The longer you choose the more interest you’ll pay, especially up front, and the more in total you’ll end up paying for that home.

Pre-payment penalties: When you sign your mortgage agreement, the lender budgets getting a certain amount of interest from you. If you pay back more than you agreed to over your term, they likely lose out on profits. Most mortgages will allow you a small amount of leeway, either a set dollar amount or percentage per year than can be paid towards the principal (called a lump sum), or the option to make higher payments than required every payment period (called an accelerated payment schedule). If you go over these amounts, including paying out the mortgage in full for any reason, the lender will charge you a fee.

A- vs B- vs Private Lenders: In Canada, the federal government regulates the financial sector. A-lenders must follow the strictest rules about qualifying you for a mortgage, including debt-income ratio, credit score, income verification, etc. A-lenders (the biggest banks and credit unions) do huge volumes of business with the lowest risk of non-payment among their clients thanks to those strict qualification rules. A lenders typically offer the best rates, so if you can qualify with them, you should typically choose one of these lenders. 

B-lenders don’t have to follow the same set of federal rules, so they can take on clients that perhaps have lower credit scores or higher debt-income ratios. B-lenders (smaller banks, credit unions, etc.) offer financing at slightly higher rates to compensate for the additional risk of non-payment among their clients. 

Finally, if you can’t qualify for home financing with A- or B-lenders, you can look to a private lender. They will offer the fastest service, the lowest barriers to entry, and the highest rates to compensate. 

Stress test: To qualify for a mortgage, you need to prove to A lenders that you’ll continue to make your payments should rates and circumstances change. To do that, the lender will calculate your payments at the higher of 5.25% or the rate they offer you + 2%. If you can still make those payments (based on a debt-income ratio), you’ve passed the stress test. B lenders, credit unions, and private lenders don’t impose a stress test.

As you can see, there’s a lot to consider when getting a mortgage. I’m here to help. If you want to discuss any of these as they pertain to your pre-approval or mortgage, send me an email or call any time!