Mortgage glossary
Plain-language definitions of the terms that show up in mortgage quotes, written for first-time buyers in both the US and Canada.
- Accelerated bi-weekly CanadaUS
Paying half of a monthly payment every two weeks. There are 26 two-week periods a year, so you make 13 monthly payments’ worth instead of 12 — one extra payment a year.
Read more → - Amortization USCanada
The schedule that pays a loan down to zero. Early payments are mostly interest; later ones are mostly principal. In Canada, "amortization" specifically means the full payoff horizon, as opposed to the term.
Read more → - Closing costs USCanada
One-off costs to complete the purchase: legal fees, inspection, title or land transfer tax, appraisal. Budget roughly 2% of the price in the US and 1.5% to 4% in Canada, on top of the down payment.
Read more → - CMHC insurance Canada
Canadian mortgage default insurance, required with less than 20% down. A one-time premium of about 2.8% to 4.0% of the loan, normally added to the principal rather than paid monthly.
Read more → - Down payment USCanada
The cash you put in up front. It sets your loan-to-value, and at 20% it removes mortgage insurance in both countries.
Read more → - Escrow US
A US account your lender uses to collect property tax and insurance alongside the mortgage payment, then pay them when due. It is why a quoted "payment" is usually bigger than principal and interest.
Read more → - HOA fee US
A monthly homeowners association fee for shared maintenance and amenities, common for US condos and planned communities. Not part of the mortgage, but part of what you pay each month. Canada calls the equivalent a condo fee.
Read more → - Loan-to-value (LTV) USCanada
The loan as a percentage of the property value. 20% down means 80% LTV. Mortgage insurance is required above 80%, and US PMI terminates automatically at 78%.
Read more → - PMI US
Private mortgage insurance, charged monthly on US loans above 80% LTV. Roughly 0.3% to 1.5% of the loan a year depending on credit score and LTV. Cancellable at 20% equity.
Read more → - Principal USCanada
The amount you actually owe. Each payment splits between interest (the cost of borrowing) and principal (what reduces the debt).
Read more → - Refinance US
Replacing your mortgage with a new one, usually to capture a lower rate or change the term. Worth modelling when rates fall roughly half a point below what you hold.
Read more → - Stress test Canada
The Canadian rule that you must qualify at the higher of your rate plus 2% or the 5.25% benchmark — so approval is based on a payment larger than the one you will make.
Read more → - Term CanadaUS
In Canada, how long your rate is locked (typically 1 to 5 years) before renewal. In the US, "term" usually means the whole loan length, such as 30 years.
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Common questions
What is amortization and why does it matter?
Amortization is the process of spreading a loan's repayment across fixed periodic payments. Early payments are weighted heavily toward interest; later ones toward principal. On a 30-year $400,000 mortgage at 7%, you pay more in interest than principal for roughly the first 21 years. The CFPB's amortization explainer shows how each payment breaks down month by month.
What is LTV (loan-to-value) and how does it affect my mortgage?
LTV is your loan balance divided by the home's appraised value. A $320,000 loan on a $400,000 home is 80% LTV. LTV drives two major costs: PMI (required above 80% LTV on US conventional loans) and your interest rate (lower LTV = lower risk = better rate). In Canada, LTV below 80% also avoids the mandatory CMHC mortgage insurance premium.
What is the difference between interest rate and APR?
The interest rate is the cost of borrowing the principal. APR (Annual Percentage Rate) includes the interest rate plus most fees — origination, discount points, broker fees — expressed as a yearly rate. APR is always higher than or equal to the interest rate. When comparing loan offers, use APR rather than rate for a true apples-to-apples comparison. The CFPB explains the APR vs rate distinction in detail.
What is an escrow account?
An escrow account (called a trust account in some states) is a separate account your lender manages to collect and pay your property taxes and homeowners insurance. Instead of paying these bills annually yourself, you pay 1/12th of the estimated total with each mortgage payment. The lender disburses the funds when bills are due. Most lenders require escrow if your down payment is below 20%. The CFPB escrow guide covers how shortages and overages are handled.
What is the Canadian mortgage stress test?
The stress test requires Canadian federally regulated lenders to qualify borrowers at the higher of their contract rate + 2%, or 5.25% — whichever is greater. Introduced under OSFI Guideline B-20, it ensures borrowers can still afford their mortgage if rates rise after they take it out. The Bank of Canada publishes the current qualifying rate used in the test.
What is a bridge loan?
A bridge loan is short-term financing — typically 6–12 months — secured against your current home to fund the purchase of a new one before your old home sells. It bridges the gap between the two transactions. Bridge loans carry higher rates than standard mortgages and fees that make them expensive if the sale drags. Investopedia's bridge loan guide covers the costs and risks in detail.
Want to see these numbers on your own scenario? Open the US calculator or the Canadian one.