Types of Mortgages

Mortgages can seem confusing, with many different types and factors to consider. Learn more about the different kinds of mortgages below to help you make the right decision for you.

High Ratio vs Conventional Mortgages

The difference between these is your down payment. If you put less than 20% down, you have a high-ratio mortgage and will be required to pay for CMHC Mortgage Insurance on top of the home price. If you put down at least 20%, you have a conventional mortgage and are not required to have mortgage insurance.

Fixed-Rate Mortgages

In fixed-rate mortgages, you pay for stability. Fixed-rate mortgages have a set rate that stays the same for your term (typically 5 years). No need to worry about increasing rates during that time. But the fixed-rate is generally higher than the variable-rate, and fixed-rate mortgages generally have high prepayment and break penalties. If you think interest rates will go up, you have a low risk tolerance, and you intend to stay in your home longer than your mortgage term, a fixed-rate mortgage could be a good choice.

Variable-Rate Mortgages

In variable-rate mortgages, you take a gamble that the variable rate will be overall better than the fixed rate over the term of your mortgage. Generally, this has been true, but there's always the risk of rising rates. Usually you can switch to a fixed-rate mortgage at any time, and penalties for breaking your contract are likely much lower than breaking a fixed-rate contract. If you think interest rates will go down, you have a higher risk tolerance, variable-rates are currently well below fixed, or you may need to break your mortgage contract within the term, a variable-rate mortgage could be a good choice.

Open vs Closed Mortgages

With an open mortgage, you have maximum flexibility in exchange for a more variable or higher interest rate. You can make lump sums or pay off your mortgage any time you want, without penalty.

Closed mortgages generally have lower interest rates, but have stricter rules and impose a penalty for paying off the mortgage early. Lump sum payments and payment increases may be limited to a low percentage or not allowed in certain times (e.g. annually only).

Convertible and hybrid mortgages are a blend of the two. With a convertible mortgage you can switch from open to closed, or from variable to fixed-rate. Hybrid mortgages are unique to a particular lender, combining various mortgage products to fit the borrower's overall financial plan.

Special Mortgages

Tenants-in-common mortgages are a type of mortgage where two or more people or corporations buy a property together, outlining exactly how much each party owns and what each is responsible for paying. Joint tenancy mortgages are similar but have an even split.

Cash back mortgages come with higher interest rates and require a fixed-rate agreement, but provide a lump sum that is often used for immediate needs like repairs.

Collateral mortgages are kind of like Home Equity Lines of Credit, but planned when your mortgage is first approved. Doing this upfront means you don't have to re-apply and re-qualify later on, but since they can exceed your home's value and have higher interest rates, they can have risks and affect your ability to qualify for other credit products.

Purchase Plus Improvements mortgages can be useful for financially-stressed buyers buying a fixer-upper. In these mortgages, the cost of your planned major renovations can be rolled into your mortgage. You would need quotes for the renovations needed, to be approved for the total of the purchase price plus renovations, pay upfront for the renovations, and then the funds would be released for you.

Choosing the Right Mortgage

The right mortgage for you depends on a lot of factors. Working with a qualified lender or mortgage broker is key to navigating the mortgage process, particularly if your situation is not typical or straightforward.