Mortgage 101

Your Complete Guide to Getting a Mortgage in Canada

Getting your first mortgage is a major milestone—and understanding how it works is essential. This guide will break the process down into easy-to-understand language. You’ll learn how mortgages work, where to find the most competitive rates, and become familiar with the key terms every buyer should know.

What is a Mortgage?

A mortgage is a loan used to purchase property, with the property itself acting as security for the loan. It’s typically a large loan repaid over 25 or 30 years.

What is a Mortgage Rate?

A mortgage rate is the interest charged by your lender—such as a bank, credit union, or mortgage company—when you borrow money. Mortgage payments go toward the interest first, then the principal. Comparing rates before locking in a mortgage is critical; a lower rate could save you thousands over time.

The Mortgage Process in Canada

Pre-Approval: Before house hunting, it’s wise to get pre-approved. This helps you know your budget and shows sellers you’re serious.
Home Search: Use your pre-approval amount to guide your property search.
Make an Offer: Once you find a home, submit an offer. If accepted, your lender finalizes your mortgage approval.
Approval & Conditions: Provide the required documents. Once approved, you can remove the financing condition (if applicable).

When Should You Apply for a Mortgage?

A good time to get a mortgage is when you’re financially stable—steady job, manageable debt, and plans to stay put for several years.

Lenders will assess:

Gross Debt Service (GDS) Ratio: Should be under 39% of your gross monthly income.
Total Debt Service (TDS) Ratio: Should be under 44% including all other debts.

Note: These ratios are tested using a higher, government-mandated stress-test rate (currently 5.25%).

Understanding Your Affordability

Knowing how much you can afford helps you shop wisely. Use an online mortgage calculator to estimate your price range.

Where Can You Get a Mortgage in Canada?

Banks & Credit Unions: Convenient, but not always the lowest rates.
Virtual Banks: Lower overhead often means better rates.
Mortgage Brokers: Access to multiple lenders and unbiased advice.
Online Brokers: Broader access to lenders and typically quick, digital processes.

Key Mortgage Terminology

Pre-Qualification: A basic estimate of your borrowing power.
Pre-Approval: A more formal process with a credit check.
Stress Test: Ensures you can afford your mortgage if rates rise.
Down Payment: Minimum 5% for homes under $500,000.
Closing Costs: Budget 1.5%–4% of the purchase price.

Types of Mortgages

Insured: Less than 20% down, requires mortgage insurance.
Insurable: 20%+ down, no insurance required.
Uninsurable: Properties over $1M or 30-year amortizations.

Term vs. Amortization

Term: Length of time your rate is guaranteed (e.g. 5 years).
Amortization: Total time to pay off the mortgage (e.g. 25 years).

Open vs. Closed

Open: Can repay anytime but higher rate.
Closed: Limited prepayment options but lower rate.

Fixed vs. Variable

Fixed: Stable rate for the term.
Variable: Rate may fluctuate with lender’s prime rate.

What Lenders Look For

Income: Prove stable employment. Self-employed borrowers need more documentation.
Down Payment: Must be proven and documented.
Assets: Savings, investments, and vehicles.
Debts & Credit: Your credit score, payment history, and outstanding debt.
Property Appraisal: Confirms market value and condition.

What Else Should You Consider?

Breaking Your Mortgage: Some terms carry high penalties.
Portability: Some lenders allow you to transfer your mortgage when moving.
Prepayment Options: Look for flexible options like lump-sum payments or increasing your monthly payment.

Final Thoughts

There’s more to getting a mortgage than just picking the lowest rate. Understanding your options, how lenders evaluate your application, and the terms involved will give you the confidence to make the right decision.