Choosing a mortgage is a major step in buying a home. In Canada, there are several mortgage types. Each type affects how much you pay and how you manage your finances. This guide explains Canadian mortgage options clearly. It helps you choose a mortgage that matches your income, goals, and future plans.
What Is a Mortgage?
A mortgage is a loan used to buy a home. You repay the loan through monthly payments. These payments include both the principal and the interest.
The lender uses your home as security. If you do not repay the loan, the lender can take the property.
Key Mortgage Types in Canada
1. Fixed-Rate Mortgage
A fixed-rate mortgage keeps the same interest rate for the full term. Your monthly payments stay the same.
Pros:
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Predictable payments
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Protection from interest rate increases
Cons:
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Higher initial rate than variable
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Penalties if you break the mortgage early
Best for:
People who want steady payments and long-term planning.
2. Variable-Rate Mortgage
A variable-rate mortgage has an interest rate that can change. The rate depends on the lender’s prime rate.
Pros:
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Lower initial rate
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Possible savings if rates stay low
Cons:
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Payments may increase
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Less predictable
Best for:
People who can handle rate changes and want possible savings.
3. Adjustable-Rate Mortgage
An adjustable-rate mortgage also changes with the market rate. Unlike variable mortgages, the payment amount changes as the rate changes.
Pros:
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Follows market closely
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May save money when rates drop
Cons:
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Monthly payments change often
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Harder to budget
Best for:
Buyers who are comfortable with payment changes.
4. Open Mortgage
An open mortgage lets you pay off the loan early without penalties. You can make extra payments or pay it off completely.
Pros:
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Flexibility to repay early
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No prepayment fees
Cons:
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Higher interest rate
Best for:
People who plan to sell soon or expect to pay off the mortgage quickly.
5. Closed Mortgage
A closed mortgage limits how much extra you can pay. If you break it early, you face penalties.
Pros:
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Lower interest rate
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Stability for long-term plans
Cons:
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Fees for early payment
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Limited flexibility
Best for:
Buyers who want low rates and plan to stay in the home long-term.
6. Conventional Mortgage
A conventional mortgage means you make a down payment of 20% or more. You do not need mortgage default insurance.
Pros:
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No insurance premiums
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Lower monthly costs
Cons:
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High upfront down payment
Best for:
Buyers with strong savings and a stable income.
7. High-Ratio Mortgage
A high-ratio mortgage means your down payment is less than 20%. In this case, mortgage default insurance is required.
Pros:
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Lower entry cost
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Easier to buy with less savings
Cons:
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Insurance adds to costs
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Higher monthly payments
Best for:
First-time buyers or those with limited savings.
Mortgage Terms and Amortization
Mortgage Term
The term is how long your mortgage agreement lasts. In Canada, terms range from 6 months to 10 years. The most common is 5 years.
At the end of the term, you renew or change the mortgage. The rate and conditions may change.
Amortization Period
This is the total time to pay off the mortgage, usually 25 years. A longer amortization means lower monthly payments, but more interest over time.
Choosing a Mortgage That Matches Your Goals
Ask yourself these questions:
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Is stability or flexibility more important?
If you want fixed costs, choose a fixed-rate or closed mortgage.
If you expect to move or pay early, an open or variable mortgage works better. -
How much risk can you handle?
If rising interest rates concern you, fixed is safer.
If you can handle rate changes, variable may save money. -
What is your budget?
Your income, debts, and expenses affect what you can afford.
High-ratio mortgages offer lower entry points but higher long-term costs. -
Do you plan to move soon?
Short-term plans fit best with open or short-term mortgages.
Long-term plans match closed, fixed-rate mortgages.
Understanding Prepayment Options
Many mortgages let you make extra payments each year. These are called prepayment privileges. Common options include:
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Annual lump-sum payments (e.g. 10% or 20% of original amount)
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Increasing monthly payments (e.g. by 10% or 15%)
Use prepayments to reduce your principal faster. This lowers your total interest cost.
Other Costs to Consider
Besides mortgage payments, plan for:
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Property taxes
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Home insurance
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Utilities
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Maintenance and repairs
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Condo fees (if applicable)
These costs affect your total budget. Include them when choosing a mortgage amount.
Getting Pre-Approved
A mortgage pre-approval helps you know your limit. It shows how much you can borrow, your interest rate, and your payment estimate.
To get pre-approved, provide:
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Proof of income
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Credit report
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Debt and asset details
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Personal ID
Pre-approval gives you a clear price range before house hunting.
Working with a Mortgage Broker
Mortgage brokers help you compare lenders. They explain your options and guide you through the process. Many do not charge fees because they earn commissions from lenders.
Consider using a broker if:
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You want to explore multiple lenders
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You are self-employed
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You have poor credit or a special situation
Final Thoughts
Choosing the right mortgage helps you manage your money and reduce stress. In Canada, your main options include fixed, variable, open, closed, conventional, and high-ratio mortgages.
Know your income, risk tolerance, and long-term plans. Use pre-approvals, calculators, and advice to make informed choices.
Stick to a budget that leaves room for savings and emergency costs. A good mortgage fits your life, not just the market.
This simple guide helps you pick the mortgage that supports your goals without confusion.