Your Complete Guide to Understanding Mortgage Basics: 5 Essential Questions Answered

Whether you're buying your first home or just trying to understand your mortgage better, this guide is here to help. We’re breaking down 5 of the most common questions Canadians ask about mortgages in simpler terms for your better understanding.

What are the most common terms for a mortgage?

Here are some important mortgage terms every homeowner in Canada should know:

Term

What It Means

Principal

The amount of money you borrow from the lender

Interest Rate

The cost of borrowing, shown as a percentage

Amortization

The total length of your loan (usually 25–30 years)

Term

The time your current rate and conditions apply (1–5 years is common)

Down Payment

The money you pay upfront (minimum 5% in Canada)

Prepayment

Extra payments that help you pay off your mortgage faster

Knowing these terms makes it easier to understand your mortgage documents and talk to your lender with confidence.

What does PITI stand for?

PITI stands for the four parts of your monthly mortgage payment:

• P – Principal (the loan amount)
  
  
• I – Interest (cost of borrowing)
  
  
• T – Taxes (property taxes, often rolled into your payment)
  
  
• I – Insurance (home insurance or mortgage insurance)
  
  

* Why it matters: These are the costs you’ll pay each month. Knowing what they mean helps you budget better.

What is a P&I payment?

P & I stands for Principal and Interest.

This is the base part of your mortgage payment. It doesn’t include taxes or insurance. If you’re quoted a payment that only covers P&I, make sure you ask what else you’ll need to pay monthly.

Tip for Canadians: Property taxes and insurance are often separate unless your lender includes them.

What is the most important part of a mortgage?

The answer depends on your goals, but generally, the interest rate is the most critical part.

Why?

• A lower interest rate = less money paid over time
  
  
• Even a 0.5% change can save you thousands
  
  
• Your interest rate affects how much of your payment goes to the loan vs. interest
  
  

Tip: Always compare rates before you sign any papers. Even small changes matter in the long run.

What are the 5 stages of a mortgage?

Here are the 5 stages of getting a mortgage in Canada:

1. Pre-Approval – You get a rough idea of what you can afford
   
   
2. Home Search – You find a home within your budget
   
   
3. Mortgage Application – You apply and submit documents
   
   
4. Approval & Closing – You get the final approval and sign the deal
   
   
5. Repayment – You start making monthly payments over time
   
   

Each step comes with its own tasks, so take it one step at a time.