MORTGAGE GLOSSARY 

A Friendly, No-Jargon Glossary to Help You Understand Mortgages 

 

Buying a home is a big deal, and the mortgage process can feel overwhelming. Don’t worry – we have craeted this simplified guide that will break down everything in the order you’ll experience it, so you can feel confident every step of the way. 

1. Getting Started: Understanding the Basics 

 

Before you even start looking for a home, it’s good to understand key mortgage terms so you’re not caught off guard. 

• Mortgage – In simple words, it’s a loan that helps you buy a home, which you repay over time with interest. 

• Down Payment – The amount of money you put down upfront and ranges from 5% to 20%.  

• Pre-Approval – A lender’s confirmation of how much you can afford to borrow based on your income, debts, and credit score. Getting preapproved before starting to shop for houses makes you a stronger buyer in a competitive market. 

• Loan-to-Value Ratio (LTV) – The percentage of the home’s price that you borrow. If you put down 20%, your LTV is 80%. 

• Debt-to-Income Ratio (DTI) – A percentage showing how much of your income goes toward debt payments (including your future mortgage). A lower DTI improves your chances of approval. 

• Interest Rate – The cost of borrowing money, expressed as a percentage. Lower interest rates mean lower monthly payments. 

 

Tip: The higher your credit score, the better your chances of getting a lower interest rate! 

 

2. Choosing the Right Mortgage Type 

 

Not all mortgages are the same. The one you choose affects how much you pay over time. 

• Fixed-Rate Mortgage – Your interest rate stays the same for the entire loan term (e.g., 5 years). This means fixed regular payments, great for long-term stability. 

• Variable-Rate Mortgage (Adjustable-Rate Mortgage – ARM) – It’s a fluctuating rate that’s based on the lender’s prime rate and can change during your mortage term and Your interest rate changes based on the market. It may start lower than a fixed rate but could increase, meaning your payments could go up. 

• Amortization – The total length of time you have to pay off your mortgage (typically 25 years in Canada, but it can be shorter or longer). 

• Mortgage Term – The length of time your mortgage agreement lasts before you have to renew or refinance (e.g., 5 years). 

• Mortgage Insurance (PMI in the U.S. / CMHC Insurance in Canada) – If your down payment is less than 20%, you’ll need to pay for this insurance. It protects the lender, not you. 

 

💡 Tip: A shorter amortization (e.g., 20 years) means higher monthly payments but saves you money on interest over time! 

3. The Homebuying Process: What Happens Next?