June 24, 2025
Buying a home is one of the most significant financial decisions most people will ever make. Chances are, if you are buying a home, you will require a mortgage. If you are a first-time buyer, you may not be familiar with everything that comes with a mortgage. Even if you are an experienced investor, you need to ensure that the terms of the mortgage meet your expectations and do not contain surprises.
What exactly is a mortgage? How does it work, and what should you know before signing on the dotted line?
Let’s break it down.
What Is a Mortgage?
A mortgage is a type of loan used to purchase real estate. When you take out a mortgage, you’re borrowing money from a lender—usually a bank or credit union—to buy a home. In exchange, you agree to repay that loan over time, typically with interest.
But here’s the key point: a mortgage isn’t just a loan. It’s also a legal agreement that gives the lender a security interest in your property. That means if you fail to repay the loan, the lender has the legal right to take ownership of your home through a process known as foreclosure or power of sale (more common in Ontario).
The Two Main Parts of a Mortgage
- Principal – This is the amount of money you borrow.
- Interest – This is what the lender charges you to borrow that money. Interest rates can be fixed (stay the same over the term) or variable (fluctuate with market conditions).
You repay the mortgage in regular instalments, typically monthly, which go toward both the principal and the interest.
Key Terms to Know
- Down Payment: The portion of the purchase price you pay upfront. In Canada, the minimum down payment ranges from 5% to 20%, depending on the price of the home and the type of mortgage being arranged.
- Amortization Period: The total length of time it will take to pay off the mortgage in full, usually 25 or 30 years. Very few mortgages these days have a term for the entire amortization period.
- Mortgage Term: The length of time your mortgage agreement is in effect—often 1 to 5 years. At the end of each term, you renew your mortgage, potentially at a different rate or with different terms.
- Prepayment Options: The ability to pay off your mortgage faster by making extra payments without penalty. Not all mortgages allow this, so it’s worth checking.
Types of Mortgages
There are several types of mortgages available in Ontario:
- Conventional Mortgage: When your down payment is 20% or more of the home’s purchase price.
- High-Ratio Mortgage: When your down payment is less than 20%. These require mortgage default insurance (often called CMHC insurance).
- Open Mortgage: Offers more flexibility for early repayment but typically comes with a higher interest rate.
- Closed Mortgage: Lower interest rate but less flexibility to make lump sum payments or pay it off early.
Legal Considerations
When you sign a mortgage agreement, you’re entering into a binding contract. The lender has a registered interest on your property title. This means that if you fall behind on payments, the lender can initiate proceedings to recover the debt—potentially resulting in the sale of your home.
Because of this, it’s crucial to:
- Read the fine print of your mortgage contract.
- Understand the penalties for breaking your mortgage early.
- Consult a real estate lawyer before finalizing your home purchase. In Ontario, a lawyer’s involvement is not just helpful—it’s necessary to handle the title transfer, register the mortgage, and ensure everything is legally sound.
Takeaways
- A mortgage is more than just a loan—it’s a cornerstone of your financial relationship with your home.
- Understanding how mortgages work, what terms to look out for, and how to protect your interests can go a long way in helping you make informed decisions.
Whether you’re a first-time homebuyer or looking to refinance, make sure to seek advice from trusted professionals, including mortgage brokers, financial advisors, and real estate lawyers.
How Weilers LLP can help you
At Weilers LLP, our lawyers take the time and care to ensure that each client receives the appropriate advice and understands the terms of their mortgage, whether they are first time buyers or experienced investors.
If you are making a purchase and want a lawyer who can explain your mortgage in easily understandable terms, give us a call. We may be the right lawyers for you.