In Canada, there are many types of mortgages, just like there are many kinds of homeowners. You need to understand how each type of mortgage works and what kind of property or borrower it fits best to choose the right one for you.
Here are some common types of mortgages in Canada:
High-Ratio Mortgages
A high-ratio mortgage is a loan where the buyer puts down less than 20% of the home’s price. For example, if you buy a $600,000 home and put down less than $120,000, you have a high-ratio mortgage. This type of mortgage needs insurance to protect the lender, which is why it’s also called an “insured mortgage.”
Conventional Mortgages
Conventional mortgages are for buyers who put down 20% or more on a home. If you make a 20% down payment, you’ll have a conventional mortgage. There’s no mortgage insurance needed, so it’s also called an “uninsured mortgage.”
Fixed-Rate Mortgages
With a fixed-rate mortgage, the interest rate stays the same for the entire term of your loan. If you get a five-year fixed-rate mortgage at 4%, your interest rate stays at 4% for five years. Fixed-rate mortgages are good for borrowers who want steady payments, but they often have higher interest rates and prepayment penalties.
Variable-Rate Mortgages
The interest rate for variable-rate mortgages can change based on the Bank of Canada’s overnight rate. When the overnight rate goes up, your monthly payments increase. Variable rates are usually lower than fixed rates, but they can be risky if inflation rises.
Open, Closed, and Convertible Mortgages
Open mortgages let you make extra payments or pay off your loan early without penalties. Closed mortgages have set terms for how much you can pay back each year, and making big changes can lead to penalties. Convertible mortgages let you switch from open to closed, or vice versa, during your mortgage term. Convertible mortgages often have lower rates than open mortgages.
Collateral Mortgages
A collateral mortgage is a loan that’s larger than needed to buy a home. The extra money is for future use. They work like home equity lines of credit approved with the original mortgage. They can be convenient but might come with higher interest rates.
Private Mortgages
Private mortgages are for buyers who can’t get approved by banks. They come from individuals or specialized lenders and can be useful if you’re having trouble getting funding. However, they usually have higher interest rates and shorter terms.
Cash-Back Mortgages
With a cash-back mortgage, you get extra money from your lender when you buy your home. This money can help with immediate costs like closing fees or repairs. Cash-back mortgages often have higher interest rates and are usually only available with fixed-rate mortgages.
Tenants-in-Common Mortgages
If two or more buyers purchase a property together, they may choose a tenants-in-common mortgage. This mortgage outlines each party’s share of the property and their responsibility for the mortgage payments.
Joint Tenancy Mortgages
In a joint tenancy mortgage, multiple buyers share equal ownership and responsibility for the mortgage. If one buyer dies, their share of the home goes to the remaining owners, not to an heir or third party.
Blended Mortgages
A blended mortgage, or “blend-and-extend” mortgage, involves adjusting your interest rate and extending your loan term. The new rate will be between your old rate and current rates. This option is often used when interest rates have fallen.
Second Mortgages
A second mortgage is a loan taken out on a property that already has a mortgage. It can help turn home equity into cash, but you’ll have to manage payments on both loans. You can borrow up to 80% of your home’s value minus the first mortgage amount.
Reverse Mortgages
A reverse mortgage is for homeowners 55 or older. It lets you borrow cash based on the equity in your home, up to 55% of the home’s value. The loan doesn’t need to be repaid until you move, sell, or the last borrower dies.
Condo Mortgages
When buying a condo, your lender will also consider condo maintenance fees along with your other housing costs. This can make it harder to qualify for a condo mortgage.
Halal Mortgages
Halal mortgages are designed for Muslims who cannot use loans with interest. These mortgages follow Sharia law and include options like Murabaha, Ijara, and Musharaka.
Understanding these types of mortgages can help you find the right one for your needs and goals.
