Mortgages and Home Financing Explained for Newcomers to Canada

For many newcomers, buying a home in Canada may come with a lot of questions especially when it comes to mortgages. Understanding how mortgages work, the different options available and what lenders may look for can help you feel more prepared as you begin the homebuying journey.

Whether you are planning to buy soon or simply exploring your options, learning the basics of mortgages can help you make more informed financial decisions.

Get Personalized Advice from a TD Mortgage Expert

In This Article, We’ll Cover:

1. What a mortgage is and how it works
2. Mortgage terms, amortization, and monthly payments
3. Fixed-rate and variable-rate mortgage options
4. Open and closed mortgage features
5. Mortgage features to consider if you move
6. Choosing a mortgage that fits your needs

1. Mortgages in Canada Explained

A mortgage is a loan that can be used to help finance the purchase of a home. The lender provides part of the purchase money, and the home acts as security for the loan. Over time, you repay the mortgage through regular payments that include both the principal (the amount borrowed) and interest.

The total amount of time you have to repay your mortgage is called the amortization period. Depending on your mortgage and your eligibility, different amortization periods may be available.

2. Mortgage Term vs. Amortization Period

Two mortgage concepts are often confusing and not well understood. These are: 1) mortgage term and 2) amortization period. Let’s make them simple to understand.

• What Is a Mortgage Term?

Your mortgage term is the length of time you agree to a specific interest rate, payment amount, and mortgage conditions with your lender. Mortgage terms commonly range from 1 to 10 years. At the end of the term, you may be able to renew your mortgage or change your mortgage.

• What Is an Amortization Period?

Your amortization period is the total amount of time it will take to pay off the mortgage in full at the current interest rate and payment amount. A longer amortization period may reduce your monthly payments, but it could also increase the total interest you pay over the life of your mortgage.

• How Are Mortgage Payments Calculated?

Several factors influence how much you pay each month, including:

• The amount borrowed
• Your interest rate
• The amortization period

Mortgage payments generally include both principal and interest.

Book an Appointment at a TD Branch Now

3. Fixed Rate and Variable Rate Mortgages

When choosing a mortgage, one of the biggest decisions is whether to select a fixed interest rate or variable interest rate.

• Fixed Rate Mortgage

With a fixed rate mortgage, the interest rate stays the same throughout the mortgage term. This means your cost of borrowing will not change during the term, assuming you make no other changes during the term.

Potential considerations may include:

• Protection if interest rates rise during the term
• No cost savings should interest rates fall during the term
• Variable rate mortgage

With a variable rate mortgage, the interest rate may change during the mortgage term based on changes to the lender’s base rate.

Potential considerations may include:

• Whether the payment amount changes automatically with rate changes
• Cost of borrowing will decrease if interest rates fall, allowing flexibility to pay down the loan faster or reduce your payment
• Cost of borrowing will increase if interest rates rise and an increase to the payment amount may be required to maintain the amortization period

Get Personalized Advice from a TD Mortgage Expert

4. Open and Closed Mortgages

Another feature to consider is whether you want an open or closed mortgage.

• Open Mortgage

An open mortgage offers flexibility by allowing you to make extra payments, pay off your mortgage in full at any time or increase your payment amount without prepayment charges.

This option may be useful if you expect to pay off your mortgage before the end of your term. However, this flexibility often comes with a higher interest rate and fewer term options.

• Closed Mortgage

A closed mortgage typically offers lower interest rates than an open mortgage with a similar term length. However, there are usually limits on how much extra you can pay toward the mortgage without prepayment charges. At TD, you have the flexibility to make lump sum payments totalling 15% of the original principal amount annually and/or increase your regular payment by 100% without charges.

• Mortgage Features to Consider if You Move

Some mortgages may include features that could help if you decide to move or sell your home in the future.

• Portable Mortgage

With some lenders, a portable mortgage allows you to request a transfer of your existing mortgage, including the interest rate and terms, to another property. (Please check with your lender).

You still need to requalify with the same lender.

• Assumable Mortgage

An assumable mortgage allows a buyer to take over the seller’s existing mortgage, subject to lender approval and conditions.

5. Choosing a Mortgage That Fits Your Needs

The right mortgage for you may depend on your financial situation, long-term goals and comfort level with changing payments or interest rates. Some newcomers may often look for features such as flexible payment options or the ability to make lump-sum payments over time.

Speaking with a mortgage specialist can help you better understand the options available and how different mortgage features could affect your finances over time.

Book an Appointment at a TD Branch Now

Why Choose TD?

More Than 160 Years of Helping Canadians:

TD has a proud history of delivering financial solutions to Canadians for more than 160 years. TD also brings a century of experience helping newcomers navigate the unique challenges of the Canadian banking system.

With over a thousand branches, and the ability to also serve you in more than 80 different languages, TD has become one of the largest and most trusted banks in Canada, now serving 16 million Canadians.

TD offers online support and resources of interest to newcomers on topics such as banking basics, moving to Canada, credit score essentials, and more. TD is open longer hours for your convenience and has thousands of ATMs across Canada to help you take care of your everyday banking needs quickly and easily.

Ready to Bank?

Learn more about TD New to Canada Banking Package today.

Book an appointment to talk with a TD Personal Banking Associate about the TD New to Canada Banking Package. You can book online right away, or visit the TD website to learn more.

Legal Disclaimer:

Information provided by TD Bank Group and other sources in this article is believed to be accurate and reliable when placed on this site, but we cannot guarantee it is accurate or complete or current at all times. The information in this article is for informational purposes only and is not intended to provide financial, legal, accounting or tax advice, and should not be relied upon in that regard. This information is not to be construed as a solicitation to buy. Products and services of the TD Bank Group are only offered in jurisdictions where they may be lawfully offered for sale. All products and services are subject to the terms of the applicable agreement. The information in this article is subject to change without notice.

^® The TD logo and other TD trademarks are the property of The Toronto-Dominion Bank or its subsidiaries.

Sources:

Financial Consumer Agency of Canada, Choosing a Mortgage That Works for You, Canada.ca, Government of Canada, https://www.canada.ca/en/financial-consumer-agency/services/mortgages/choose-mortgage.html (accessed 22 May 2025).