A 2025 Guide for First-Time Canadian Homebuyers
Understanding mortgage terms is essential when you are buying your first home in Canada. The mortgage process can be confusing without the right information, especially in a fast-changing financial environment like 2025. At Canadian Mortgage Professionals, we specialize in helping first-time buyers in Alberta and across Canada make informed, confident decisions.
This guide breaks down the most common mortgage terms you will encounter. Whether you are applying for pre-approval, renewing your mortgage, or exploring refinancing options, this article will help you speak the same language as your mortgage broker and lender.
What is a Mortgage Pre-Approval?
A mortgage pre-approval is a written estimate from a lender stating how much you can borrow to purchase a home. This process involves checking your income, credit score, debt ratios, and documentation.
Pre-approval is different from pre-qualification, which is a more general assessment based on unverified financial information.
In 2025, a pre-approval can also help you lock in an interest rate for up to 120 days, which is important in a rising rate environment.
Fixed Rate vs Variable Rate Mortgage
- A fixed rate mortgage means your interest rate stays the same for the full term. Your monthly payment will not change.
- A variable rate mortgage means your interest rate can change during the term, depending on the Bank of Canada’s policy rate.
In 2025, many Canadian borrowers are weighing fixed rates for predictability against variable rates for potential long-term savings.
What is the Mortgage Term?
The mortgage term is the length of your contract with your lender. In Canada, common terms are 1 to 5 years. At the end of the term, you can renew, renegotiate, or switch lenders.
This is not the same as the amortization period, which is the total time it will take to fully pay off your mortgage, usually 25 or 30 years.
Understanding the Mortgage Stress Test in 2025
The mortgage stress test ensures that borrowers can handle future interest rate increases. As of 2025, you must qualify at the higher of either:
- Your contracted rate plus 2 percent
- The Bank of Canada’s benchmark qualifying rate
This rule applies to both insured and uninsured mortgages and is especially important if you are buying with less than 20 percent down.
How Much is the Minimum Down Payment in Canada?
As of 2025, Canadian down payment rules are:
- 5 percent for homes up to $500,000
- 10 percent on the portion from $500,001 to $999,999
- 20 percent minimum for homes $1 million or more
If you pay less than 20 percent down, you must purchase mortgage default insurance.
What is Mortgage Default Insurance?
Also known as CMHC insurance, mortgage default insurance protects the lender if the borrower cannot make payments. It is required if your down payment is less than 20 percent.
The premium is based on a percentage of your loan amount and can be added to your total mortgage.
Understanding Open vs Closed Mortgages
- An open mortgage allows you to pay off your loan early at any time, usually with a higher interest rate.
- A closed mortgage has limited flexibility for early repayment but typically offers a lower rate.
Most Canadians choose closed mortgages unless they plan to sell or refinance in the short term.
What Are Closing Costs?
Closing costs are one-time fees you must pay when your home purchase is finalized. In Alberta, they typically include:
- Legal fees
- Land title registration
- Property tax adjustments
- Home inspection and appraisal costs
You should budget between 1.5 and 4 percent of your home’s purchase price for closing costs.
What is Porting a Mortgage?
Porting a mortgage allows you to transfer your existing mortgage, along with its current rate and terms, to a new property. This can help you avoid penalties and keep your current rate when moving.
Porting is useful when interest rates are rising, which is relevant for many Canadians in 2025.
What is a HELOC (Home Equity Line of Credit)?
A HELOC is a line of credit secured by your home equity. It gives you flexible access to funds for renovations, investment, or debt consolidation. HELOCs are typically offered at lower interest rates than unsecured credit.
Bonus: Common Mortgage Acronyms in Canada
- GDS: Gross Debt Service ratio
- TDS: Total Debt Service ratio
- LTV: Loan to Value
- CMHC: Canada Mortgage and Housing Corporation
- RECA: Real Estate Council of Alberta
These acronyms are commonly used during the mortgage process, especially when applying through a licensed Alberta mortgage broker.
Final Thoughts: Mortgage Education Makes Stronger Homeowners
Understanding mortgage terminology helps you avoid surprises and negotiate better terms. Whether you are buying in Calgary, Edmonton, or elsewhere in Alberta, Canadian Mortgage Professionals is here to guide you.
Have mortgage questions? Contact us today for a no-obligation consultation and get personalized advice that puts your goals first.
