Mortgage rate questions, answered

Glossary

A

Adjustable-rate mortgage

A variable-rate mortgage whose regular payment changes when the lender's prime rate changes, so the amortization stays on track. With a variable mortgage that has fixed payments, the payment stays the same and the split between interest and principal changes instead. More

Amortization

The total time it would take to pay off a mortgage at the current rate and payment. With less than 20% down, the maximum is 30 years for first-time buyers and/or new builds and 25 years otherwise; with 20% or more down, the lender sets the maximum. A longer amortization lowers the payment but increases total interest. More

Annual percentage rate (APR)

The yearly cost of borrowing expressed as a percentage, including both interest and certain fees. Two loans with the same interest rate can have different APRs if one charges up-front fees. Comparing APRs is a fairer way to compare loan offers. More

Automatic renewal

When a lender renews a mortgage at the end of the term without a new signed agreement. If your lender plans to do this, the renewal statement says so. Reviewing the offer before the renewal date lets you negotiate or switch instead. More

B

Basis point

One hundredth of a percentage point. Lenders and markets often describe rate changes in basis points, so a change of 25 basis points is the same as a quarter of a percentage point. This site describes differences in percentage points instead.

Benchmark

A yardstick a rate is measured against. This site uses two: the lowest rate published today for the same mortgage (best today), which sets the grade, and what borrowers typically paid, from the Bank of Canada, shown for context. Each is shown with its date and source. More

Blend and extend

An option some lenders offer to combine your current rate with a new rate and extend the term, instead of breaking the mortgage. The blended rate falls between the two rates, weighted by time and amount. More

Bond yield

The annual return an investor earns on a bond at its current market price. Yields move every day with markets, and fixed mortgage rates tend to follow Government of Canada yields for similar terms. More

C

Cash-back mortgage

A mortgage where the lender pays you a lump sum at closing, usually in exchange for a higher rate. If you break the mortgage early, you may have to repay some or all of the cash back.

Closed mortgage

A mortgage that limits how much you can prepay during the term and charges a penalty if you exceed those limits or break the contract. Most closed mortgages include some prepayment privileges.

Collateral charge

A way of registering a mortgage that can secure more than the original loan amount, which can make it easier to borrow more later with the same lender. A collateral-charge mortgage can cost more to switch to another lender. More

Compound interest

Interest calculated on the original amount plus interest already earned or charged. On savings it helps your balance grow faster; on debt it makes an unpaid balance grow faster.

Compounding

Charging or paying interest on interest that has already been added to the balance. The more often interest compounds, the more it adds up over a year at the same nominal rate. More

Conventional mortgage

A mortgage with a down payment or equity of at least 20% of the property's value. It usually doesn't require mortgage default insurance.

Credit report

A record of your credit history kept by a credit bureau, including your accounts, balances, payment history and inquiries. Lenders use it to decide whether to lend to you and at what rate.

Credit score

A number calculated from your credit report that summarizes how likely you are to repay. Lenders use it, with your income and other details, to set the rate they offer. The grader doesn't know your credit score, so a low listed rate may not be available to every borrower.

Criminal interest rate

Section 347 of the Criminal Code defines the criminal rate as an annual percentage rate above 35% on the credit advanced, calculated by actuarial practice. "Interest" for this purpose includes most fees and charges. Some loans are exempt.

D

Discharge fee

A fee your lender charges to remove its mortgage from the property title when you pay it off or move to another lender. It is one of several switching costs to ask about, along with registration, transfer or assignment, appraisal and administration fees. More

Discounted rate

A rate below the lender's posted rate, offered to a particular borrower. The discount depends on the lender, the product and the borrower, and it is the part of a mortgage quote that is most open to negotiation. More

E

Effective annual rate

The rate you actually pay or earn over a year once compounding is taken into account. A nominal rate that compounds more often than once a year has a slightly higher effective annual rate.

Effective interest rate (Bank of Canada series)

The Bank of Canada publishes monthly effective interest rates that chartered banks charged on new lending, such as new mortgages, auto loans, personal loans and lines of credit. Because these are rates borrowers actually received, they already reflect discounts below posted rates. The site uses them as benchmarks for most borrowing products. More

Estimated adjustment

When a Bank of Canada figure is older than a later market move, the site moves it by that change and labels it as an estimate: fixed rates with the matching Government of Canada bond yield, variable rates and HELOCs with the policy rate. More

F

Federally regulated lender

A financial institution, such as a bank, that falls under federal financial consumer protection rules. For mortgages, these rules include sending a renewal statement at least 21 days before the end of the term.

Fixed rate

An interest rate that stays the same for the whole term. Fixed mortgage rates tend to follow Government of Canada bond yields rather than the Bank of Canada's policy rate. More

Funds advanced

In Bank of Canada lending statistics, rates on funds advanced describe new loans made during the month, as opposed to all loans outstanding. The site uses these series for new mortgages, auto loans, personal loan plans and lines of credit. They are published with a lag of roughly two to three months. More

G

Government of Canada bond

Debt issued by the federal government for terms of two years or longer. The Bank of Canada publishes benchmark yields for them; fixed mortgage rates tend to follow the yield of a similar term, and the site uses the 2-, 3- and 5-year yields to move its typical fixed rates forward. More

H

High-ratio mortgage

A mortgage with less than 20% down. High-ratio mortgages generally need mortgage default insurance, and the maximum amortization is 30 years for first-time buyers and/or new builds and 25 years otherwise.

Home equity

The part of your home's value that you own outright: its market value minus what you owe against it. You can borrow against equity through a HELOC, a refinance or a second mortgage. More

Home equity line of credit (HELOC)

A revolving line of credit secured by your home. It can be up to 65% of the home's value, and combined with a mortgage, borrowing can usually reach up to 80%. HELOC rates are variable and usually quoted as prime plus a spread. More

I

Insured mortgage

A mortgage covered by mortgage default insurance, which protects the lender if the borrower doesn't repay. Mortgages with less than 20% down generally need it. Lenders usually price insured mortgages differently from uninsured ones, which is why the site asks. More

Interest rate differential (IRD)

A penalty based on the difference between your mortgage rate and a comparison rate for the time left in your term. Lenders usually use it when your rate is higher than the current rate and your contract was signed less than five years ago. Many lenders base the comparison rate on posted rates, which can make the penalty larger. More

Interest-only payment

A payment that covers only the interest charged, without reducing the balance. Many HELOCs allow interest-only payments, so a balance can stay outstanding for a long time unless you pay more. More

L

Line of credit

Revolving credit up to a set limit that you can borrow, repay and borrow again. You pay interest only on what you use. Lines of credit usually have variable rates and can be secured, such as a HELOC, or unsecured. More

Loan-to-value ratio (LTV)

The amount borrowed against a property divided by its value. It decides whether mortgage default insurance is needed and limits home equity borrowing: a HELOC can be up to 65% of a home's value, and combined with a mortgage, borrowing can usually reach up to 80%.

Lump-sum prepayment

A one-time extra payment that goes directly to the principal. On a closed mortgage it is allowed without penalty up to the limit in your prepayment privileges.

M

Mortgage default insurance

Insurance that protects the lender, not the borrower, if a mortgage isn't repaid. The premium is usually added to the mortgage. When switching lenders, a new premium may apply if the loan amount increases or the amortization is extended.

N

Nominal rate

The stated annual interest rate before the effect of compounding. Two products with the same nominal rate can cost or earn different amounts if they compound at different frequencies.

O

Open mortgage

A mortgage you can pay off in part or in full at any time without a prepayment penalty. That flexibility usually comes with a higher rate than a comparable closed mortgage.

Overnight rate

The interest rate at which major financial institutions borrow and lend one-day funds among themselves. The Bank of Canada sets a target for it, and that target is the policy rate.

P

Payment frequency

How often you make mortgage or loan payments, such as monthly, semi-monthly, biweekly or weekly. Your renewal statement shows it, and changing it can change how fast the balance falls.

Percentage point

The arithmetic difference between two percentages. A rate that moves from one level to another changes by a number of percentage points, which is not the same as the percentage change in the rate itself. Grades are set by how many percentage points your rate sits above the best published rate. More

Policy rate

The Bank of Canada's policy interest rate is its target for the overnight rate. When it changes, lenders' prime rates usually follow, which moves variable mortgages, HELOCs and other prime-linked borrowing. More

Portability

A feature that lets you move your existing mortgage, with its rate and term, to a new home without a prepayment penalty. Conditions vary by lender, so ask how it works before you sign. More

Posted rate

A lender's advertised list price for a mortgage, GIC or savings product. The Bank of Canada publishes the major chartered banks' posted rates weekly. Posted mortgage rates are list prices that borrowers are often offered below, and many lenders use posted rates when they calculate an interest rate differential penalty. More

Pre-approval

A lender's conditional review of how much it may lend you, often with a rate hold. It isn't a final approval: the lender still reviews the property and confirms your details before funding. More

Prepayment penalty

A charge for paying off or breaking a closed mortgage before the end of the term, or prepaying beyond your privileges. It is usually the higher of three months' interest or the interest rate differential. Lenders must tell you how they calculate it, and it appears in an information box at the start of the agreement. More

Prepayment privilege

The amount you can pay on top of regular payments without a penalty, such as increased payments or lump sums up to a set amount or percentage of the original mortgage. Privileges vary by lender and can be worth more than a small rate difference if you plan to pay down debt faster. More

Prime rate

The reference rate a financial institution uses to price variable-rate loans, lines of credit and variable mortgages. Each institution sets its own prime rate as a function of its funding cost, which is influenced by the Bank of Canada's target for the overnight rate. Variable rates are usually quoted as prime plus or minus a spread. More

R

Rate hold

A lender's promise to keep a quoted rate available for a set period while you shop or close. The length varies by lender, so get it in writing along with the rate. More

Readvanceable mortgage

A mortgage combined with a HELOC under one registration, where the credit available on the line can grow as you pay down the mortgage. It is usually registered as a collateral charge.

Refinance

Replacing your mortgage with a new one, often to borrow more against your home or change the terms. Refinancing during a term can trigger a prepayment penalty, and a new mortgage loan insurance premium may apply if the amount increases or the amortization is extended. More

Renewal statement

The document your lender sends before your term ends. A federally regulated lender must send it at least 21 days before the end of the term, showing the balance, rate, payment frequency, term and any charges, and saying the rate offered won't increase until the renewal date. It must also tell you at least 21 days ahead if it won't renew. More

S

Second mortgage

A loan secured by your home that ranks behind your first mortgage. Its rate is generally higher than the rate on the first mortgage because the lender is repaid second if the property is sold.

Secured credit

Borrowing backed by an asset, such as your home or a vehicle, that the lender can claim if you don't repay. Because the lender's risk is lower, secured credit is usually priced lower than unsecured credit.

Semi-annual compounding

Compounding twice a year. Under the Interest Act, a blended-payment mortgage must state its rate calculated yearly or half-yearly, not in advance, and in practice Canadian fixed-rate mortgages quote rates compounded semi-annually. Variable-rate mortgages commonly compound monthly. More

Simple interest

Interest calculated only on the original amount, not on interest already added. Some GICs pay simple interest each year rather than compounding it, so check how interest is paid when you compare offers.

Spread

The difference between two rates. A variable mortgage or HELOC is usually priced as a spread above or below prime, and the spread is the part set by your lender rather than by market moves. Fixed mortgage rates also carry a spread over Government of Canada bond yields. More

Stale benchmark

A figure older than its normal publication lag. Bank of Canada monthly figures are marked stale after 120 days, weekly after 14 and daily after 7; best-today rates carry a warning after 7 days. More

Stress test

A qualification check at a rate higher than the one you're offered. Most new mortgages and refinances at federally regulated lenders need it. Since November 21, 2024, OSFI doesn't expect it for an uninsured straight switch at renewal, and since December 16, 2024, federal insurance rules dropped it for low-ratio switches, if the amount and amortization don't increase.

Switch or transfer

Moving your mortgage to a different lender, typically at renewal, without changing the amount owed. Costs can include discharge, registration, transfer or assignment fees, an appraisal and administration fees, so ask the new lender whether it will cover some or all of them. More

T

Term

The length of time your mortgage contract, rate and conditions are in force. At the end of the term you renew, switch lenders or pay off the balance. The term is usually much shorter than the amortization. More

Three months' interest

A prepayment penalty equal to three months of interest on the balance at your current rate. On a closed mortgage the penalty is usually the higher of this or the interest rate differential. Under the Interest Act, an individual's mortgage with a term longer than five years can be repaid after five years with three months' further interest. More

Trigger rate

On a variable mortgage with fixed payments, the rate at which the payment only covers the interest owed. Above it, none of the payment reduces the balance, and the lender's contract sets out what happens next. More

U

Uninsured mortgage

A mortgage without mortgage default insurance, typically with 20% or more down or equity. The Bank of Canada publishes separate effective-rate series for insured and uninsured new mortgages, and the site uses the one that matches. More

Unsecured credit

Borrowing that isn't backed by an asset, such as most credit cards, personal loans and unsecured lines of credit. The lender relies on your credit history and income, so rates are usually higher than on secured borrowing.

V

Variable rate

An interest rate that moves with the lender's prime rate during the term, usually quoted as prime plus or minus a spread. Depending on the mortgage, a prime change alters either your payment or how much of a fixed payment goes to interest. More