Trudi Schuurhof

Types of Mortgage Loans in Canada

As a mortgage broker, it’s essential for you to understand the different types of mortgage loans available in Canada. Here’s a simple guide to help you navigate the options:

Adjustable-Rate Mortgages (ARMs)

An Adjustable-Rate Mortgage (ARM) has an interest rate that can change periodically based on the Bank of Canada’s overnight rate. If this rate goes up, so will your monthly payments. ARMs generally offer lower initial rates compared to fixed-rate mortgages, but they come with the risk of rising payments if interest rates increase. ARMs can be structured with different adjustment periods, such as one year or five years, during which the rate can change.
  • Potential for lower costs if rates drop
  • Lower penalty for breaking mortgage early
  • Payments can increase if interest rates rise
  • Less predictable than fixed-rate mortgages

Fixed-Rate Mortgages

A Fixed-Rate Mortgage has a set interest rate and monthly payment that doesn’t change throughout the term of the loan. This stability makes it a popular choice for those who prefer predictability in their finances.
  • Stable monthly payments
  • Predictable payoff timeline
  • Generally higher interest rates compared to ARMs
  • Higher penalties for breaking the mortgage early

High-Ratio Mortgages

A High-Ratio Mortgage is when your down payment is less than 20% of the home’s purchase price. These mortgages require mortgage default insurance from providers like CMHC, Sagen, or Canada Guaranty, which adds to the overall cost.
  • Lower down payment requirements
  • Accessibility for first-time buyers
  • Additional cost for mortgage insurance
  • Higher overall cost due to insurance premiums

Conventional Mortgages

Conventional Mortgages require a down payment of 20% or more of the home’s purchase price. These loans do not need mortgage default insurance, but they usually come with higher interest rates.
  • No need for mortgage insurance
  • Potentially lower overall cost without insurance premiums
  • Higher down payment required
  • Higher interest rates

Home Equity Line of Credit (HELOC)

A HELOC allows you to borrow against the equity of your home. It offers flexibility in how you use the funds, whether for debt consolidation, home improvements, or other expenses. HELOCs can be standalone or combined with a mortgage (re-advanceable mortgage).
  • Flexible borrowing
  • Can access funds as needed
  • Your home is used as collateral
  • Potential for higher interest costs if not managed carefully

Reverse Mortgages

A Reverse Mortgage is designed for homeowners aged 55 and older, allowing them to convert home equity into cash without selling their home. You can borrow up to 55% of your home’s value, with no regular mortgage payments required. Borrowers can choose to pay off the interest regularly, but neither the interest nor the principal has to be paid back until they move, sell the property, default on the loan or the last borrower dies.
  • Access to cash without selling your home
  • No monthly mortgage payments
  • Higher interest rates
  • Significant prepayment penalties
  • Potential impact on estate value

Private Mortgages

Private Mortgages are offered by individuals or specialized institutions for buyers who can’t get approved by traditional lenders. These loans typically have higher interest rates and shorter terms (6 months to 2 years).
  • Accessible for those with poor credit or other financial challenges
  • Higher interest rates
  • Shorter loan terms
  • Less regulation, requiring careful lender evaluation
This guide should help potential borrowers understand the key features, benefits, and risks of each mortgage type, making it easier for them to make informed decisions.


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