Types of Mortgages in Canada: An Overview of Every Option

Canadian mortgages differ along a few separate lines: how the rate behaves, how long the term and amortization run, whether the loan carries default insurance, which features come with it, and whether it’s a specialty product for a particular situation. This overview gives each type of mortgage a short summary and points to the guide that covers it in full. For the complete list of guides, see the mortgage types and features hub, and for the start-to-finish process of getting a mortgage, see how Canadian mortgages work.

By rate type

Fixed or variable. A fixed rate trades a usually higher starting rate for a payment that can’t change during the term; a variable rate starts lower in most markets but follows prime up and down. The trade-offs, the penalty difference and how the spread between the two affects the choice are in the fixed vs variable guide.

Two kinds of variable. Some lenders change your payment whenever prime moves (an adjustable-rate mortgage); others keep the payment fixed and change how much of it goes to principal. On the fixed-payment kind, a big enough rise can leave the payment covering only interest, which is the trigger rate, and beyond it the balance can grow, which is negative amortization.

Convertible. A convertible mortgage lets you lock into a fixed rate during the term. If your variable-rate mortgage has a convertibility feature, you can change it to a fixed rate during the term, but you usually pay a fee, other conditions may apply, and the new fixed rate may be higher than the variable rate you've been paying.

Hybrid. A hybrid (or combination) mortgage splits the balance into portions, for example one part on a five-year fixed and the rest on a variable rate, so only part of the debt moves with prime. Each portion has its own rate and its own penalty if broken.

How interest is calculated. Canadian fixed-rate mortgages are quoted with interest compounded twice a year, which makes the payment slightly lower than a monthly-compounded quote at the same rate; see semi-annual compounding. Current fixed and variable rates are on the mortgage rates page.

By term and amortization

The term is how long your rate and contract last; the amortization is how long the whole debt takes to repay. The difference is explained in term vs amortization.

By insurance status

The 20% down payment line splits the market. Below it, a mortgage needs default insurance from CMHC, Sagen or Canada Guaranty; at or above it, insurance is optional.

Default insurance. The insurance protects the lender, not you, and its premium is usually added to the mortgage. What it costs in dollars and the ways to avoid it are in what CMHC insurance is; the premium schedule and the insurance rules are in the CMHC mortgage rules, and the CMHC premium calculator works out a premium for your price and down payment.

Price limit. Insured mortgages are available only on homes priced under $1.5 million; at that price or higher, the minimum down payment is 20%. Financing at that level is covered in million-dollar home mortgages.

Why insured rates are often lower. Insured mortgages can be pooled into government-guaranteed securities, which gives lenders cheaper funding; see mortgage-backed securities.

By feature

Specialty mortgages

Bridge financing. A bridge loan lets you use the equity in the home you’re selling before that sale closes; the explainer covers how it works, and the bridge financing calculator works out what it costs.

Reverse mortgages. A reverse mortgage lets older homeowners borrow against their equity with nothing to repay until they sell, move out or die, while interest builds on the balance. Eligibility, how much you can borrow and the costs are in the reverse mortgage guide, and the reverse mortgage calculator estimates how the balance grows.

Covered in other sections. Commercial property loans are covered in commercial mortgages, and whether a lender can pursue you beyond the home after a default is covered in recourse vs non-recourse mortgages.

Alternative and private lenders

B-lenders. Alternative (B) lenders approve borrowers the banks turn down, such as some self-employed borrowers or people with credit problems, at higher rates and often with a lender fee and a shorter term. How they work and the path back to a bank are in the B-lender mortgage guide.

Private lenders. Private lenders lend mostly on the value of the property, usually for short terms, at higher rates and fees than B-lenders. Who uses them and what they cost are in the private mortgage lenders guide.

Matching a type to a situation

These are the trade-offs each type is built around, not a recommendation; your lender, your budget and your plans decide which fits.

• Payment certainty over the term: a closed fixed rate holds the payment steady, at the cost of a usually higher starting rate and a larger penalty to break.
• Lower starting rate with movement: a closed variable rate follows prime, with either a payment that moves (adjustable) or a principal share that moves (fixed-payment variable).
• Possibility of selling or paying off early: variable-rate penalties are usually smaller, and an open mortgage has none, at a higher rate.
• Less than 20% down: an insured mortgage, with a premium added to the loan.
• Ongoing access to equity: a readvanceable mortgage with a credit line.
• Unsure between fixed and variable: a hybrid mortgage or a convertible variable.

Terms you’ll meet along the way are defined in the mortgage glossary.