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Lenders offer different mortgage types, each designed to support individual homeowner goals. Understanding the different products can help you find the right fit for you. Here are the most common mortgage types:

Fixed-Rate Mortgage

A fixed-rate mortgage offers stability with a locked-in interest rate for the full term. This means the payments do not change during the term, making it a great choice for homeowners who prefer consistency and long-term planning.

Variable-Rate Mortgage (VRM)

With a variable-rate mortgage, your interest rate changes based on fluctuations in the Bank of Canada's prime rate. Changes to the prime rate are announced seven times a year, and it can increase or decrease. This option is best suited for those comfortable with some level of financial flexibility.

Adjustable-Rate Mortgage (ARM)

Similar to a VRM, but with one key difference—your payments adjust as the prime rate changes. This means you always pay the same portion of principal and interest, helping you manage your mortgage balance more strategically.

Open vs. Closed Mortgage

  • Open mortgages allow you to make extra payments or pay off your mortgage early without penalties—ideal for those expecting a financial windfall.
  • Closed mortgages offer lower interest rates but come with restrictions on extra payments. They work well if you plan to stay in your home for the term’s duration.

High-Ratio vs. Conventional Mortgage

  • High-ratio mortgages require less than a 20% down payment and must be insured (e.g., through CMHC, Sagen, or Canada Guaranty).
  • Conventional mortgages involve a 20% or higher down payment, eliminating the need for mortgage insurance.

Home Equity Line of Credit (HELOC)

A HELOC allows you to borrow against your home’s equity as needed, providing a flexible way to access funds for renovations, investments, or unexpected expenses.

Choosing the right mortgage depends on your financial goals and lifestyle. As a mortgage broker, I help you navigate your options and find the best fit for your needs. Let’s chat about your mortgage strategy today!

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Types of Mortgages

Closed mortgages

Closed mortgages generally have prepayment options of up to 20% of the original mortgage amount. If you decide to pay out, renegotiate or refinance before the end of the term of a closed mortgage, prepayment costs will be applied.

Open mortgages

An open mortgage can be repaid at any time throughout the term, either in full or partially without paying a prepayment charge. Provides flexibility until you are ready to lock into a closed term.

Convertible mortgages

A convertible mortgage is similar to a closed mortgage, but gives you the option of converting to a longer, closed mortgage at any time without paying a prepayment charge. With this option you can generally make an annual prepayment up to 10% of the original mortgage amount.

What is a high-ratio mortgage?

A high-ratio mortgage refers to a mortgage in which the borrower has a down payment between 5% - 20%. These mortgages require mortgage default insurance.

CMHC, Genworth Financial Canada, Canada Guaranty

The Canadian government supports high levels of homeownership through an insurance plan that covers lenders in the event that borrowers of insured mortgages default on their mortgage.

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Types of mortgage interest rates

Fixed rate mortgages

A fixed interest rate does not fluctuate during the mortgage term. This option allows your payment to remain constant so you know exactly how much you will pay every month and the amount you will have paid off at the end of the term.

Variable rate mortgages

A variable interest rate will fluctuate with prime rate throughout the mortgage term. This impacts the amount of principal that you pay off each month as your mortgage payment will remain constant.

Conventional vs. high-ratio mortgages

A conventional mortgage equals no more than 80% of the appraised value or purchase price of the property, whichever is less. A high-ratio mortgage is usually for more than 80% of the appraised value or purchase price. It's often referred to as an NHA mortgage because it is granted under the provisions of the National Housing Act and must, by law, be insured through a mortgage insurance provider. The insurance premium as well as application, legal and property appraisal fees are paid by the borrower.

Closed vs. open mortgages

Closed mortgages generally offer lower interest rates than open mortgages of the same term, but open mortgages let you pay off as much as you want, any time, without penalty - which could save you a bundle in the long run.

Short term vs. long term

The term you select is important. Short term mortgages are appropriate if you believe interest rates will be lower at renewal time. Long term mortgages are suitable if you feel current rates are reasonable and you want the security of budgeting for the future. This can be especially important for first time homebuyers.

Fixed rate vs. variable rate

Identifying whether a fixed or variable rate mortgage is best for you is an important decision. The truth is that no one can accurately forecast what the future holds in the financial markets 3 to 5 years from now. So assessing whether a fixed or variable rate mortgage product is best for you requires an understanding of your personal financial plan and ability to handle market fluctuations.

Fixed rates are based on the yield on Canadian government bonds and will not change during the term of your mortgage. This buffers you from increases in market interest rates and allows you to budget precisely for whatever term you select - from one to as many as 25 years.

Variable rate mortgages fluctuate with the market. Variable rates are essentially determined by institutional prime lending rates, which are influenced by the Bank of Canada's key interest rate. So you receive a discount or surcharge on prime based on what your lender is offering at any given time.

Specialty mortgages creatively combine the best of all worlds.