Mortgages, Guarantors and Financing Conditions What Every Buyer Needs to Know
For most buyers, financing is how the deal gets done but it comes with obligations, risks, and legal concepts that are worth understanding before you sign anything.
What is a Mortgage?
A mortgage called a "charge" in Ontario under the Land Titles Act is a loan secured against real property. You borrow money from a lender and in exchange the lender registers a charge on title. If you fail to make payments, the lender has the right to enforce the mortgage and ultimately sell the property to recover the debt.
Key Mortgage Terms
| Term | What It Means |
|---|---|
| Principal | The amount you borrowed |
| Interest Rate | Fixed (locked in for the term) or variable (moves with prime rate) |
| Amortization | Total repayment period (e.g., 25 years) |
| Term | Period of the current mortgage agreement (e.g., 5 years); must be renewed at maturity |
| Prepayment Privileges | Your right to pay down faster; penalties apply if exceeded |
| Discharge | Removal of the mortgage from title when the loan is paid off |
What is a Financing Condition?
A financing condition in an APS gives the buyer a set number of days typically 3–5 business days to obtain a satisfactory mortgage commitment from a lender. If financing cannot be secured, the buyer can terminate the agreement and receive their deposit back in full.
What is a Guarantor?
A guarantor is a person who agrees to be personally responsible for a borrower's debt if the borrower defaults. In a mortgage context, a guarantor agrees to pay the mortgage if the primary borrower cannot. Guarantors are commonly required when a borrower has insufficient income or credit history on their own.
Before agreeing to be a guarantor:
- You are legally obligated to pay if the borrower defaults
- The debt may appear on your credit report and affect your borrowing capacity
- The lender may register an interest against your property
- Seek independent legal advice before signing any guarantee
First Mortgage vs. Second Mortgage
The priority of a mortgage on title determines who gets paid first if the property is sold. A first mortgage has priority over a second mortgage. Second mortgages are higher risk for the lender they may not recover their full amount if the first mortgage consumes the sale proceeds and therefore carry higher interest rates.
Power of Sale
In Ontario, the most common enforcement remedy for a mortgage default is power of sale the lender can sell the property themselves (without court involvement) after giving the borrower notice and a redemption period (typically 35 days). Any surplus after satisfying the outstanding mortgage and costs belongs to the borrower. Power of sale is significantly faster than foreclosure, which requires court proceedings.