A mortgage is a loan used to finance the purchase of property, like a house. The property itself acts as collateral (security) for the loan. In Canada, borrowers make regular payments, typically consisting of principal (paying down the loan) and interest (the cost of borrowing), over a specific mortgage term (e.g., 5 years). The entire length of time it takes to repay the loan is the amortization period (e.g., 25 years).

To get mortgage pre-approved, you provide financial information (like income verification, debt statements, credit history) to a lender or mortgage broker. They assess how much you can likely borrow based on lending guidelines and the mortgage stress test. You'll receive a pre-approval letter stating the potential loan amount and often locking in an interest rate for a specific period (e.g., 90-120 days), strengthening your offer when house hunting.

The minimum down payment in Canada depends on the home's purchase price:

• Homes priced $500,000 or less: 5% minimum down payment.
• Homes priced $500,001 to $999,999: 5% down on the first $500,000, plus 10% down on the portion above $500,000.
• Homes priced $1 million or more: 20% minimum down payment.

If your down payment is less than 20% of the purchase price, you'll typically need mortgage default insurance.

Fixed-Rate Mortgage: Your interest rate and payment amount remain the same for the entire mortgage term (e.g., 5 years). Offers payment stability and predictability, protecting you from rate increases during the term.

Variable-Rate Mortgage: Your interest rate fluctuates based on changes in the lender's prime rate (influenced by the Bank of Canada). Your payment might stay fixed (affecting principal/interest portions) or change with the rate. Can potentially save money if rates fall, but carries risk if rates rise.

Mortgage default insurance (often called CMHC insurance, though Sagen and Canada Guaranty are also providers) is mandatory in Canada for home purchases with a down payment less than 20%. It protects the lender (not the borrower) against losses if you default on mortgage payments. The insurance premium is usually added to your mortgage principal and paid off over the amortization period, increasing your total borrowing cost.

Amortization Period: The total length of time it will take to pay off your entire mortgage principal (e.g., 25 years or 30 years is common in Canada).

Mortgage Term: The shorter period (e.g., 3, 5, or 10 years) for which your current mortgage contract (interest rate, lender, conditions) is valid. At the end of the term, you must renew your mortgage for another term, potentially with different conditions or a different lender, until the full amortization is complete.

Canadian mortgage rates are influenced by several factors:

• Bank of Canada's Policy Interest Rate: Primarily affects variable rates and lender prime rates.
• Government of Canada Bond Yields: Primarily influence fixed mortgage rates.
• Lender Competition & Costs: Lenders' funding costs and profit margins.
• Risk Assessment: Your personal credit score, income stability, down payment size, and the property type affect the rate offered.
• Mortgage Type & Term: Open vs. closed, fixed vs. variable, and the length of the term impact the rate.

Start exploring your mortgage renewal options about 4 to 6 months before your current term expires. Your lender will send a renewal offer, but this may not be the best available rate. Shopping around early gives you time to compare offers from other lenders or work with a mortgage broker to potentially secure better terms or switch lenders without rushing.

Refinancing involves breaking your current mortgage contract before the term ends to replace it with a new one, often with a larger loan amount or different terms. Common reasons include:

• Securing a lower interest rate.
• Switching mortgage types (e.g., variable to fixed).
• Accessing home equity via a cash-out refinance for renovations, debt consolidation, or investments.

Refinancing often incurs prepayment penalties from your existing lender, so weigh these costs against the potential benefits.

Closing costs are expenses paid on closing day, beyond the property's purchase price. In Canada, these typically include:

• Legal Fees & Disbursements: Lawyer/notary costs for title transfer, registration.
• Land Transfer Tax (LTT): Varies significantly by province and municipality (a major cost in some areas like Toronto or Vancouver).
• Title Insurance: Protects against title issues.
• Property Appraisal Fee: Often required by the lender.
• Home Inspection Fee: Optional but highly recommended.
• Adjustments: For prepaid property taxes or utility bills by the seller.

Budget approximately 1.5% to 4% of the home's purchase price for closing costs.

The mortgage stress test is a Canadian regulation requiring borrowers to qualify for their mortgage using a higher interest rate than their actual contract rate. You must prove affordability at the Minimum Qualifying Rate (MQR), which is the greater of:

• Your contractual mortgage rate plus 2%, OR
• The 5.25% benchmark rate (Note: This benchmark can change; verify the current rate).

It applies to most insured and uninsured mortgages, including renewals if switching lenders. Its purpose is ensuring borrowers can handle potential rate increases, but it reduces the maximum loan amount.

Yes, Canada offers several programs to help First-Time Home Buyers (FTHB):

• Home Buyers' Plan (HBP): Allows withdrawal from RRSPs for a down payment (must be repaid over 15 years).
• First Home Savings Account (FHSA): A tax-free account combining RRSP and TFSA features for down payment savings.
• Programs and Regulations are Constantly Evolving:

  Speak to your Lender about programs that could fit your unique need. Eligibility criteria apply to all programs.

Open Mortgage: Offers maximum flexibility. You can make extra payments, or pay off the entire mortgage balance, at any time during the term without incurring a prepayment penalty. Interest rates on open mortgages are typically significantly higher than closed mortgages.

Closed Mortgage: Usually offers a lower interest rate but restricts how much extra you can pay towards the principal each year (these are called prepayment privileges). Exceeding these limits or breaking the contract early (e.g., refinancing, selling) typically triggers substantial prepayment penalties.

Yes, most Canadian mortgages, especially closed mortgages, offer prepayment privileges allowing accelerated repayment without penalty, within limits. Common options include:

• Increasing regular payments: Often by 10-20% per payment.
• Making lump-sum payments: Usually allowed once per year, up to 10-20% of the original or current principal balance.
• Accelerated payment frequencies: Bi-weekly or weekly payments can shave years off amortization.

Check your specific mortgage contract for exact privilege details and limitations to avoid penalties.