What Is a Mortgage? (Quick Definition)
A mortgage is a loan used to buy a home or other property, where the property secures the debt. The borrower repays the principal plus interest over an agreed period, and the lender can take the property if payments aren't made. The Consumer Financial Protection Bureau describes it in much the same way, and Wikipedia's overview covers the legal background.
Three pieces are involved: the borrower (the mortgagor), the lender (the mortgagee) and the property as collateral. Say you buy a $600,000 home with $120,000 down (20%). You borrow $480,000, the lender registers a charge on title, and you repay with interest over time. Because you put at least 20% down, this would be a conventional mortgage, which doesn't need default insurance. If you stop paying, the lender can enforce its security, which in Ontario can mean power of sale.
How a Canadian Mortgage Works: Key Components
Principal and interest. Principal is the amount you borrow. Interest is the cost of borrowing it. Early payments are mostly interest, and the principal share grows with each payment. For more on this, see how mortgage interest rates work and current Ontario mortgage rates.
Term vs. amortization. Term is how long your rate and lender contract last (often 5 years). Amortization is how long it takes to pay off the whole mortgage (often 25 years). Since December 15, 2024, insured first-time buyers and buyers of new builds can choose up to 30 years. When a term ends, the mortgage is renewed, refinanced or paid out. The balance isn't due in full at that point. Our guide to renewal versus refinancing explains your options.
Compounding. Canadian fixed-rate mortgages compound semi-annually by law. That means the effective monthly rate isn't simply the annual rate divided by 12, which is why calculators built for other countries can give slightly different payments. U.S. Bank's explainer shows the general mechanics, though Canadian rules differ in details like this.
Minimum down payment. You need 5% of the first $500,000, 10% of the portion from $500,000 to $1.5 million, and 20% for homes of $1.5 million or more.
Default insurance. Down payments under 20% require mortgage default insurance from CMHC, Sagen or Canada Guaranty. The premium is added to your mortgage, and insured purchases must be under $1.5 million.
Payment frequency. You can pay monthly, semi-monthly, biweekly, accelerated biweekly or weekly. Accelerated options make the equivalent of one extra monthly payment per year, which shortens your amortization.
Down payment sources. Most buyers use savings, a gift from family, or the RRSP Home Buyers' Plan. The Consumer Financial Protection Bureau also advises focusing on a payment that's affordable for you, not on the maximum you qualify for.
Example: Monthly Payments on a $300,000 Mortgage
A $300,000 mortgage at 5% over 25 years costs about $1,745 per month in principal and interest. These figures assume a 25-year amortization, a 5-year fixed term, semi-annual compounding and monthly payments. The rates are illustrative, so check today's quotes on our Ontario rates page before you plan around them.
The table shows how the payment changes with the rate.
| Interest rate | Monthly payment |
|---|---|
| 4.00% | about $1,578 |
| 4.50% | about $1,661 |
| 5.00% | about $1,745 |
| 5.50% | about $1,831 |
Each 0.5% increase adds roughly $83 to $86 per month, or about $1,000 per year. At 5.00%, total interest over the full 25 years would be roughly $223,000 (about $523,000 paid in all), assuming the rate stayed the same the whole time. In practice your rate will change at each renewal.
Property tax, heat, home insurance and any default insurance premium are separate from the principal-and-interest payment.
Mortgage vs. Loan vs. House Loan: What's the Difference?
A mortgage is a loan secured by real estate, but a general loan may be unsecured and have no property attached. "House loan" is simply an informal term for a mortgage.
The real distinction is secured versus unsecured debt. A mortgage is backed by collateral. A personal loan or credit card isn't. Because the lender has real estate behind the debt, mortgage rates are usually lower and amortizations much longer than for unsecured borrowing.
The mortgage is registered as a charge on the property title. If you default, the lender may enforce its security through power of sale or foreclosure (see the legal background). An unsecured lender can't do that without first getting a court judgment.
Types of Mortgages and Lenders for Ontario Buyers
By rate: a fixed rate is locked for the term, while a variable rate moves with the lender's prime rate.
By flexibility: closed mortgages limit prepayments and carry penalties if you break them early. Open mortgages let you repay in full anytime but come with higher rates.
By down payment: insured mortgages have under 20% down and carry default insurance. Uninsured (conventional) mortgages have 20% or more down.
By priority: a first mortgage has priority on title. A second mortgage ranks behind it, so it carries a higher rate.
By lender: banks, credit unions, monoline lenders (mortgages only) and private lenders, which serve situations that don't meet standard guidelines. The differences between Ontario mortgage lenders can affect your rate, flexibility and approval odds. A mortgage broker can reach many of these lender types with one application.
Stress Test and Ontario Closing Costs
The federal stress test requires you to qualify at the higher of your contract rate plus 2% or 5.25%. With a 5% contract rate, you'd need to qualify at 7%. It checks that you could still afford payments if rates rose.
Ontario land transfer tax is charged on the purchase price on a graduated scale. First-time buyers can receive a rebate of up to $4,000. Toronto adds a separate municipal land transfer tax, with a first-time buyer rebate of up to $4,475.
Other closing costs include legal fees, title insurance and an appraisal. Budget roughly 1.5% to 4% of the price beyond your down payment. As the Consumer Financial Protection Bureau notes, planning for the full cost of ownership matters as much as the loan itself.
Mortgage FAQ
What is a mortgage in simple terms?
A mortgage is money borrowed to buy property, repaid with interest, with the property as security. In Canada, most are amortized over 25 years and renewed every few years. If payments stop, the lender can enforce against the property, as the CFPB also explains.
How much would a $300,000 mortgage cost per month?
About $1,745 per month at 5%, 25 years and semi-annual compounding. At 4.00% it's about $1,578, at 4.50% about $1,661 and at 5.50% about $1,831. These cover principal and interest only. Property tax, heating, insurance and any default insurance premium are extra, and how payment frequency affects what you pay is worth checking too.
Is a loan a mortgage?
Not always, because only mortgages are secured by real estate. Every mortgage is a loan, but personal loans, lines of credit and credit cards are usually unsecured, so they typically carry higher rates and shorter repayment periods. See bank loan vs. mortgage company for more.
Is a mortgage the same as a house loan?
Yes, in everyday language. "House loan" is an informal term for a mortgage used to purchase or refinance a home. Formally, the mortgage is the legal charge registered on the property, and the loan is the money you owe.
Should I use a broker or a bank?
A broker compares multiple lenders, while a bank offers only its own products. Read our mortgage broker vs. bank breakdown, and learn how to compare mortgage offers once you have them.
Can self-employed people get a mortgage?
Yes, self-employed borrowers can qualify using alternative income documentation. Our guide to qualifying for a mortgage when self-employed covers what lenders look for.
Next Steps
Check your down payment, credit and budget before you apply, then ask for a pre-approval, which typically holds a rate for 90 to 120 days. If you're new to buying, start with our first-time home buyer mortgage advice in Ontario. We offer education-first guidance with no pressure, including renewals, refinancing and the Smith Manoeuvre™ for homeowners interested in advanced strategies.