Different Types of Mortgages in Canada: A Definitive Guide
For most people, sorting out a mortgage can feel overwhelming. Whether you’re buying your first home, renewing your current mortgage, or looking to access equity for renovations or investments, the options can become confusing—fast.
The good news? Once you understand how each type of mortgage works, things start to make a whole lot more sense. It’s not about picking the “best” mortgage — it’s about finding the one that actually fits your life, your plans, and the way you manage money.
We walk people through this every day, so this guide is your straight-up, no-fluff rundown of the different types of mortgages in Canada — what they are, how they work, and who they’re best suited for.
Let’s dive in.
First, a Quick Refresher on the Basics
Before diving into the different mortgage types, let’s get a few key terms straight. If you already know this stuff, feel free to skip ahead—but if not, these concepts will help everything else make way more sense.
- Mortgage Term: This is how long your current mortgage contract lasts—usually 1 to 5 years. When the term ends, you can renew or renegotiate.
- Amortization Period: This is the total time it’ll take to pay off your mortgage in full, often 25 or 30 years.
- Interest Rate: This is the cost of borrowing money from your lender. Rates can be fixed (they stay the same) or variable (they can change).
The Main Types of Mortgages in Canada
1. Fixed-Rate Mortgage
What it is: Your interest rate stays locked in for the entire term.
Why people choose it:
- Predictable monthly payments make it easy to budget.
- No surprises if interest rates go up.
Drawbacks:
- Usually comes with a slightly higher rate than variable.
- Not very flexible if you want to make extra payments or break the mortgage early.
Best for: Homeowners who like stability and want to sleep easy knowing their payment won’t change.
2. Variable-Rate Mortgage
What it is: The rate moves with the prime rate set by your lender, which is influenced by the Bank of Canada.
Why people choose it:
- Typically starts lower than fixed.
- You might save money if rates stay low or drop.
Drawbacks:
- Payments can go up if rates rise.
- Makes long-term budgeting a bit trickier.
Best for: Borrowers comfortable with some risk and looking to save on interest.
3. Open Mortgage
What it is: You can pay off the full balance anytime—no penalties.
Why people choose it:
- Total flexibility.
- Great if you plan to sell soon or expect a financial windfall.
Drawbacks:
- Higher interest rates compared to closed mortgages.
Best for: People who don’t plan to stay in the home long or want to pay off the mortgage quickly.
4. Closed Mortgage
What it is: Comes with restrictions around early payoff and lump-sum payments.
Why people choose it:
- Lower rates than open mortgages.
- Clear, predictable terms.
Drawbacks:
- Break your mortgage early, and you could face steep penalties.
Best for: Buyers planning to stay put for a while with a stable financial plan.
5. Convertible Mortgage
What it is: Starts as a variable-rate mortgage but gives you the option to lock into a fixed rate later.
Why people choose it:
- Flexibility to adapt if interest rates start climbing.
- Usually starts with a lower rate than a fixed mortgage.
Drawbacks:
- Fewer features than fully variable or fully fixed mortgages.
Best for: Buyers who want to dip their toe in with a variable rate but keep the option to switch.
6. Hybrid Mortgage
What it is: A blend of fixed and variable—say, half your mortgage is at a fixed rate, and half is variable.
Why people choose it:
- Combines the security of fixed with the potential savings of variable.
- Offers a bit of a hedge against rate swings.
Drawbacks:
- Can be more complex to manage.
- Different portions may renew at different times.
Best for: Strategic borrowers looking for balance and diversification in their mortgage.
7. Reverse Mortgage
What it is: Available to homeowners aged 55+, it lets you tap into your home equity without monthly payments.
Why people choose it:
- Provides tax-free cash.
- No repayment required until you sell or move out.
Drawbacks:
- Interest compounds over time, reducing your equity.
- Can shrink the estate you leave behind.
Best for: Seniors who want to age in place and need extra cash flow without selling their home.
High-Ratio vs. Conventional Mortgages
- High-Ratio Mortgage: You put less than 20% down, so you’ll need mortgage insurance (usually through CMHC).
- Conventional Mortgage: You’ve got at least 20% down—no insurance required.
Standard vs. Collateral Charge Mortgages
- Standard Charge: Easier to switch lenders at renewal. The mortgage is registered only for the actual amount you borrow.
- Collateral Charge: Registered for more than the loan amount, which can give you flexibility to borrow more later—but harder to switch lenders without legal fees.
Quick Comparison Table
| Mortgage Type | Rate Type | Flexibility | Prepayment Penalties | Best For |
|---|---|---|---|---|
| Fixed-Rate | Fixed | Low | Yes | Risk-averse buyers |
| Variable-Rate | Variable | Medium | Yes | Interest-savvy, risk-tolerant |
| Open | Fixed/Variable | High | No | Short-term borrowers |
| Closed | Fixed/Variable | Low | Yes | Long-term, stable finances |
| Convertible | Variable → Fixed | Medium | Yes | Buyers watching interest trends |
| Hybrid | Mixed | Medium | Varies | Diversified strategy seekers |
| Reverse | N/A | N/A | N/A | Seniors tapping into equity |
Don’t Forget: Mortgages Can Vary by Province
Some provinces have unique rules or extra costs you’ll want to factor in:
- B.C.: Stricter lending rules for foreign buyers.
- Quebec: You’ll need a notary to register your mortgage.
- Ontario: Cities like Toronto have their own land transfer tax on top of the provincial one.
When in doubt, a local mortgage broker can walk you through the fine print. Contact Us at Red Key Mortgage we’re here to help you.
Expert Insight
“The ‘right’ mortgage isn’t just about the rate—it’s about fit. A good mortgage advisor looks at your entire financial picture, not just what you can afford on paper.”
— Luke Wile, Licensed Mortgage Broker, Red Key Mortgage
FAQs
Q: What’s the most popular mortgage in Canada?
A: Hands down, the 5-year fixed-rate closed mortgage. It’s the go-to for many Canadians.
Q: Can I switch mortgage types later?
A: Usually, yes—especially with an open or convertible mortgage. Just keep in mind that switching often comes with fees or penalties.
Q: Are reverse mortgages safe?
A: They can be, as long as you understand how they work. Always get advice from a licensed professional before signing anything.
Not Sure Which Mortgage Is Right for You?
Call us and book a free consultation with a Red Key Mortgage advisor. We’ll walk you through your options and help you make a choice that works for your life—not just the numbers.
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Final Thoughts
Mortgages aren’t one-size-fits-all. The best one for you depends on your lifestyle, future plans, and comfort with risk. But when you’ve got the right knowledge—and a great team in your corner—you can move forward with total confidence.
We’re here to help when you’re ready. Book a Consultation