Mortgage Loans: Borrowing Against Residential Property

What a mortgage is

A mortgage is a loan secured against residential property. The property is the collateral: if the loan is not repaid, the lender can enforce its charge against the home. Because the money is secured, a mortgage generally carries a longer amortization and a larger amount than a personal loan or a credit card, and it is priced on different terms. A loan for a mortgage and the mortgage itself are not the same thing — one is the money advanced, the other is the legal charge that secures it.

People search for real estate loans when they are buying a home, renewing an existing mortgage, refinancing, or taking equity out of a property they already own. The mechanics differ by province, because lending in Canada is licensed provincially, so the regulator and the rules differ by province and territory.

loanmoose.ca is not a lender. It does not make loans, set rates, or make credit decisions. It is a matching and comparison service. Any mortgage you end up with comes from a licensed lender that assesses your file on its own terms.

Who it suits

• You are buying a residential property and need to finance most of the purchase price.
• You already own a home, your mortgage is approaching renewal, and you want to compare what is available before you recommit.
• You hold equity in a property and want to convert some of it into funds for a renovation, for consolidating higher-cost debts, or for another purpose a lender will accept.
• Your income is documented and stable — salaried, hourly, or verifiable self-employment income — and you can produce the paperwork that shows it.
• You can carry a housing payment alongside the other debts that will remain after closing.
• Your credit file is either clean, or the problems on it are old enough and small enough that you can explain what changed.

What a lender checks

Four things decide the file: income, existing payments, credit history, and the property.

Income. The lender wants to know what you earn and how reliably. Salaried and hourly borrowers usually document this with pay statements, an employment letter and tax documents. Self-employed borrowers generally need to show a history of declared income. A lender is not measuring how much you make in a good month; it is measuring how much it can count on.

Existing payments. Lenders calculate ratios of your debt payments to your income. Federally regulated mortgage lenders generally work to a total debt service ratio ceiling of about 44%, which measures all housing costs plus all other debt payments against gross income. Those same lenders qualify an uninsured mortgage at the greater of the contract rate plus 2 percentage points and 5.25%, under OSFI Guideline B-20. It is that test rate, not the rate you would actually pay, that your ratios are calculated on. Insured mortgages and provincially regulated lenders are not all subject to B-20.

Credit file. The lender pulls your credit history. Canada has two national credit reporting bureaus, and a free copy of your credit report is available from each, so you can see what a lender will see before it does. Recent missed payments, collections, a consumer proposal or a bankruptcy all change the reading. A consumer proposal stays on a credit report for 3 years after completion, or 6 years from filing, whichever comes first. A first bankruptcy stays on a credit report for 6 years after discharge. Time and re-established credit matter as much as the event itself.

Security. The property has to be worth what the lender is being asked to lend against it. That means a valuation, a title search, confirmation the home is insurable, and confirmation the lender can register a charge in the right position. Where a federally regulated lender extends a home equity line of credit, it is generally limited to 65% of appraised property value, with total secured lending usually capped at 80%. Where your mortgage sits relative to those ceilings affects both the terms and whether the file goes through at all.

What it costs to carry

Read this as structure, not as a quote. No rate appears here, because a rate depends on your file, the property, the term you choose and the lender.

Interest is the largest component, charged on the balance for as long as the balance exists. Canadian fixed-rate mortgages are compounded semi-annually by law, which is why the rate you are quoted and the rate that compounds are not identical in effect. A variable-rate mortgage behaves differently again, because its rate moves with an external benchmark. The Bank of Canada publishes a policy interest rate, a prime rate, conventional mortgage rates and Government of Canada benchmark bond yields. Those are benchmarks, not offers.

Fees arrive in a few categories: an appraisal or valuation fee, a title search or legal fee, registration costs, and sometimes an administration or discharge fee at the end. Some are paid at closing and some when the mortgage is paid off.

Insurance is separate from the mortgage when you buy default insurance because your down payment is below the lender's threshold — that premium protects the lender, not you, and is typically added to the balance. Mortgage life insurance is a different and optional product. Property insurance is required and is yours to pay.

The headline rate is not the total cost of borrowing. The total includes interest over the time you hold the loan, fees, insurance premiums, and any penalty for breaking the term early. Two mortgages with the same headline rate can cost different amounts once fees and prepayment terms are counted. For reference, no credit agreement in Canada may charge interest above the criminal rate of interest, which is 35% per year under section 347 of the Criminal Code. That is a legal ceiling, not a market benchmark.

How it compares with the alternatives

Option	When it fits	What to watch
First mortgage	You are buying a home, or replacing an existing first charge on one you own.	Term length, prepayment terms, and the penalty for breaking early.
Home equity line of credit	You own the property and want revolving access to equity rather than a single lump sum.	At federally regulated lenders it is generally limited to 65% of appraised value, with total secured lending usually capped at 80%; the drawn balance is usually at a variable rate.
Refinance or second charge	You want to restructure existing debt or raise funds without selling the property.	Adding secured debt raises the consequences of missing a payment, and a second charge usually costs more than a first.
Unsecured personal loan	The amount needed is smaller and you would rather not put the home up as collateral.	Unsecured borrowing generally costs more than secured borrowing for the same amount.
Payday loan	It does not fit a mortgage-sized need: a payday loan is generally up to $1,500 for a term of 62 days or less.	Where a province operates a licensed regime, the federal Payday Lending Regulations cap the cost of borrowing at $14 per $100 advanced, and some provinces set a lower cap that applies instead. Quebec does not license payday lending, which effectively prohibits the model there.

Before you sign

1. Read the full disclosure rather than the summary, and confirm the rate, the term, the amortization, the payment frequency, and what happens at renewal.
2. Find the prepayment terms in writing: how much extra you may pay each year without penalty, and how the penalty is calculated if you break the term.
3. Add the closing costs and the ongoing costs together — valuation, legal, registration, insurance premiums, property taxes — so you know the real monthly figure rather than the payment alone.
4. Pull your own credit report from both national bureaus before a lender does, and correct anything that is inaccurate or out of date.
5. Confirm who regulates the lender. Federally regulated financial institutions' consumer complaints go to the Financial Consumer Agency of Canada, while provinces license and supervise most other lenders. If you are already dealing with insolvency, remember that only a licensed insolvency trustee can administer a consumer proposal or a bankruptcy, and trustees are regulated by the Office of the Superintendent of Bankruptcy Canada.