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A Definitive Guide to All Mortgage Terms Any First-Time Buyer Should Know
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Buying your first home? You’ve probably heard a bunch of mortgage terms flying around — preapproval, amortization, default insurance — and it can all feel like learning a new language. Don’t worry. This guide is here to translate everything you need to know into plain English, so you feel confident and in control from start to finish.
Let’s break down all the key mortgage concepts every Canadian first-time buyer should know.
What Is a First-Time Homebuyer in Canada?
Before you dive in, you’ll want to confirm whether you actually qualify as a first-time homebuyer. Most federal and provincial programs define you as a first-time buyer if you (or your spouse/common-law partner) haven’t owned a home that you lived in within the last four years. But eligibility can vary slightly depending on the specific incentive, so it’s best to speak with a mortgage advisor to confirm you meet the rules for each.
Why does it matter? Because first-time buyers get access to special perks like rebates on land transfer tax, the First Home Savings Account (FHSA), and more lenient down payment options.
Understanding the Basics: What Is a Mortgage?
At its core, a mortgage is simply a loan that helps you buy a home. The home you’re buying acts as the security for the loan. You borrow a certain amount from a lender, agree to pay it back with interest, and the lender registers the loan against your property.
There are two common types of mortgages in Canada:
- Standard Charge Mortgage: Traditional loan tied directly to the property.
- Collateral Charge Mortgage: Registers a higher loan amount, allowing future borrowing without refinancing.
All About Down Payments
Your down payment is the chunk of money you pay upfront when buying a home. In Canada:
- 5% is the minimum if the home costs $500,000 or less.
- If the price is between $500,000 and $999,999, you’ll need 5% on the first $500K + 10% on the remainder.
- For homes $1 million and up, you need at least 20%.
A down payment of less than 20% means you’ll need mortgage default insurance. While 20% down lets you skip that insurance, it’s not always the best strategy — sometimes buying sooner with a lower down payment makes more sense depending on your market and financial goals.
The Mortgage Preapproval Process
Getting preapproved means a lender has reviewed your finances and given you a ballpark budget for home shopping. Here’s what typically happens:
- Apply: You share income, job details, and debts.
- Verify: Lender checks credit score and asks for supporting documents.
- Review: A mortgage advisor helps determine what type of loan fits you best.
- Decision: You get a preapproval letter with a maximum amount and locked-in rate (usually for 90–120 days).
Heads-up: Preapproval isn’t a guarantee — you’ll still need to qualify based on the actual property you buy.
Fixed vs. Variable Mortgage Rates
Mortgage rates aren’t just numbers — they shape how much you’ll pay each month. Here’s the basic difference:
- Fixed Rate: The interest rate stays the same for your full term (usually 1–5 years). Great if you want predictable payments.
- Variable Rate: Your rate can change with your lender’s prime rate. It might start lower than fixed, but it could rise.
There are also hybrid options like adjustable-rate mortgages (ARM) and capped VRMs (Variable Rate Mortgages) — ask your mortgage advisor which suits your situation best.
Mortgage Term vs. Amortization
These two terms often confuse buyers, but they refer to totally different things:
- Term: The length of time your mortgage agreement is in effect — usually 1 to 5 years. At the end, you renew at a new rate.
- Amortization: The total time it will take to pay off your entire mortgage — usually 25 or 30 years.
So you might have a 5-year term on a mortgage that amortizes over 25 years — meaning you’ll renew five times before the mortgage is fully paid off.
What Is Mortgage Default Insurance?
If you put down less than 20%, your lender is required to get mortgage default insurance (often called CMHC insurance). This protects the lender in case you stop making payments — and allows you to qualify for a mortgage with a smaller down payment.
This insurance is paid by you, usually rolled into your mortgage amount. The cost ranges from 2.8% to 4% of the mortgage, depending on your down payment.
Tip: Some savvy buyers choose to pay 19.99% down and cover the insurance cost out of pocket to get the best of both worlds — the lowest insured rate and no interest on the insurance premium.
Final Thoughts: Learn the Language, Make Smarter Moves
Buying your first home is a major milestone, but the lingo doesn’t have to stand in your way. Understanding mortgage terms — from down payments to amortization — helps you make smarter, more confident decisions.
Still unsure about something? That’s what mortgage advisors are for. Book a call, ask your questions, and get real answers from someone who knows the market.
