The mortgage process comprises of many complex terms which might make it difficult for laymen to understand. Therefore, the definitions of a few important words which you will come across often have been explained below for your reference.

Closing Costs: Closing costs are the additional expenses that must be covered by you in a mortgage process. These include land transfer taxes, title insurance, appraisal fees, home inspection fees and other relevant expenditures.

CMHC Insurance: Canada Mortgage and Housing Corporation or CMHC insurance is a coverage policy that will protect the lender if you default on the mortgage. CMHC insurance is mandatory for any down payment below 20% of the selling price of the home.

Conventional Mortgage: A conventional mortgage is any mortgage in which a down payment of at least 20% is paid.

Down Payment: Down payment is the upfront amount which you have to pay before buying a house. In Canada, the down payment must be at least 5% of the home value to avail a mortgage.

Fixed Mortgage Rate: A fixed mortgage remains the same for the whole period. This means that the monthly payments are also the same.

High Ratio Mortgage: A high ratio mortgage is characterized by a down payment which is between 5% and 19.99% of the selling price of the house.

Home Buyers Plan: The Home Buyers Plan or HBP is a government incentive for Canadian citizens, which allows you to withdraw money for the down payment from your Registered Retirement Savings Plans or RRSPs. This amount does not incur any taxes.

Interest: Interest is the excess amount that you must pay back on any loan.

Mortgage Amount: A mortgage is any loan taken at a specified interest rate to purchase a home. The borrower usually has to put up a valuable item or a lien as a guarantee that he will pay the loan back.

Mortgage Rate: Mortgage rate is the interest rate at which a loan is given. It depends on many factors such as the down payment, size of mortgage, credit score and bond yields. Naturally, a loan with a lower interest rate is more preferable, but this is not the only criteria to judge the value of the deal.

Principal: Principal amount is the actual money borrowed from a lender. However, it has to be given back an interest rate within a specific period of time.

Variable Mortgage Rate:  A variable mortgage rate changes with the prime rate, which is determined by the Bank of Canada. The prime rate fluctuates frequently and the mortgage rate will change with it.