A Helpful Glossary for the First-Time Buyer

Amortization, Rates, Balance… Oh My!

As a first-time buyer, it can be challenging to make sense of all the terminology around real estate purchases.

Here are a few of the most important terms to understand.

A Practical Glossary

Downpayment

This is the amount that serves as capital when purchasing the property. For a residential mortgage, your downpayment must correspond to 20% of the house’s value (for example, an $80,000 downpayment for a $400,000 house).

If you have less than a 20% downpayment, the mortgage may be insured by the CMHC (see the “Default Insured Mortgage” section below).

Mortgage Pre-Approval

This is an application process that serves three main purposes. It determines your borrowing limit (the maximum amount that the financial institution is willing to lend you for your purchase), estimates your future payments, and locks in an interest rate for a limited period. To learn more, read Applying for Mortgage Pre-Approval.

Mortgage Term or Maturity Date

This is the term set out in the contract between the borrower and the financial institution, typically between 3 and 5 years. At the end of this contract, the borrower may renegotiate the interest rate or conditions, or switch to another financial institution (to obtain better offers). The borrower may also decide to repay part or all of the loan without incurring a penalty.

Mortgage Loan

This is the amount you borrow from the financial institution to purchase the house or condo. It represents the value of the property minus the downpayment. However, it’s important to note that this loan is made in exchange of a primary secured creditor guarantee on the property. This means that if a borrower defaults on their loan, their property may be repossessed.

Rate (Fixed or Variable)

This is the interest rate agreed upon when negotiating the mortgage. Rates have been high in recent years due to the pandemic. However, they’ve returned to attractive levels as of 2025.

This rate significantly impacts your mortgage payments. You can choose a fixed rate (which won’t vary throughout the term of your mortgage) or a variable rate (which will fluctuate with market conditions). To better understand the pros and cons of either option, consult our article!

Amortization Period

When taking out a mortgage, you must select an amortization period of between 1 and 30 years (most borrowers choose either 20, 25 or 30 years).

The amortization period is an assumption of the time needed to repay the mortgage in full: it represents the number of years over which you initially plan to reimburse the loan completely.

The longer the amortization period, the smaller the payments will be.

Bear in mind as well that you can always choose to pay the property off more quickly and alter this repayment schedule over the years. So don’t worry too much about this decision. Amortization is explained in greater detail in this article.

Mortgage Balance

The balance is the amount of money left to pay back on the mortgage loan.

Note that part of each mortgage payment goes towards repaying the principal and part towards repaying the interest. Early in the term, a larger portion of the payment is allocated to the interest, and this ratio gradually reverses in favour of the principal as the years go by.

Mortgage Interest Cost

This involves determining how much you’ve paid in interest on your mortgage since you took it out.

Also, be aware that if you’re self-employed, part of the interest may be tax deductible. If you’re self-employed, consult our practical guide!

Mortgage Line of Credit (or Home Equity Line of Credit)

It’s a kind of “mini mortgage” within a specific category of mortgage. This is called a mortgage line of credit. This segment has its own rate, term, and amortization period. It may equally include several segments contracted at different times inside the same mortgage line of credit structure.

Default Insured Mortgage

If you’re unable to make a 20% downpayment, the financial institution will require additional protection in the form of an insured mortgage (in Quebec, the CMHC is one of the best-known title insurance providers). This protects the bank in the event of non-payment by the borrower.

The amount, also called a premium, can be paid in a single instalment or added to your mortgage balance, which increases the total amount of the loan.