Mortgage math

Equity

The difference between your home's current value and your remaining mortgage balance. Equity is what you can borrow against (HELOC, refinance) or what you keep when you sell.

Equity grows two ways: every payment chips away at your principal, and any rise in your home's market value accrues entirely to you. On an $800,000 home with a $500,000 mortgage, you hold $300,000 in equity — a real, borrowable asset.

Canadian lenders generally let you access up to 80% of your home's value combined across all charges. On that same home, 80% of $800,000 is $640,000 — so you could borrow up to $140,000 on top of your existing $500,000 mortgage through a refinance or HELOC.

Equity is the engine behind debt consolidation, renovations, a rental-property down payment, and tuition funding — almost always at a far lower rate than credit cards or unsecured loans. The trade-off is that the debt is secured against your home, so the plan to repay it matters.

Sources

Borrowing against home equity (Financial Consumer Agency of Canada)

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Amortization

The total length of time it would take to pay your mortgage off completely if the rate and payments stayed the same. In Canada, insured mortgages (under 20% down) are capped at 25 years, or 30 years for first-time buyers and buyers of new builds; with 20% or more down, the lender sets the maximum (commonly 30 years). A longer amortization lowers the payment but raises lifetime interest.

LTV

Loan-to-Value ratio

Loan-to-value ratio: your mortgage balance divided by the property's value (the lower of purchase price or appraised value on a purchase). 80% LTV means 20% equity. Insured purchases can go up to 95% LTV on homes of $500,000 or less; above that, the 10% down-payment tier lowers the maximum.

Monthly payment

Principal + interest payable each month. Canadian fixed-rate mortgages are normally quoted with semi-annual compounding. Most lenders let you switch to accelerated bi-weekly or weekly payments to pay the mortgage off sooner.

Principal

The amount you actually borrowed. Each payment is split between principal (which reduces your balance) and interest. Early years are mostly interest; late years are mostly principal.

Semi-annual compounding

The Canadian convention for fixed-rate mortgages: the quoted annual rate compounds twice a year rather than monthly. At the same quoted rate, semi-annual compounding costs slightly less than monthly compounding, so a Canadian rate isn't directly comparable to a U.S. monthly-compounded one.

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