Types of mortgages in Canada: How to choose the one for you

If you want to get a mortgage in Canada, you’ll need to choose the right interest rate, mortgage term, and repayment schedule for you.

Let’s take a look at the different types of mortgages in Canada, including everything you need to know before applying for your Canadian mortgage.

We’ll also look at Wise – your international money transfer alternative. Hold, send, and receive money in over 40 currencies in just one digital account.

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Table of contents
What are the different types of mortgages in Canada? Fixed vs variable mortgage Open mortgage Closed mortgage Convertible mortgage Hybrid mortgage Reverse mortgage Buying property abroad? Send money the hassle-free way with Wise Can US citizens get a mortgage in Canada? Mortgages in Canada vs US What to consider when getting a mortgage Mortgages in Canada FAQs

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What are the different types of mortgages in Canada?

Let’s take a look at some of the main mortgage types in Canada, including popular Canadian mortgage terms and interest rates.

Fixed vs variable mortgage

When you take out a mortgage, you’ll pay interest on top of the money you borrow from your bank. There are a few different types of interest rates, including a fixed-rate mortgage and a variable mortgage.

For a fixed mortgage, your rate of interest will stay the same for your full mortgage term. You can take out your mortgage when interest rates are low – and you’ll make the same loan payment each month.

In comparison, a variable-rate mortgage will fluctuate. Your interest rate will change depending on the prime rate set by your lender. So, if the prime rate increases, so will your mortgage payments.

You can typically access a more flexible payment schedule on a variable mortgage – and you may also be able to leave your mortgage before your term ends.¹

Open mortgage

An open mortgage is a flexible type of mortgage loan. You’ll have more control about how and when you pay off your debt and, depending on your lender, you can make additional payments towards your mortgage.

If you receive a big bonus at work, for example, you can use it to pay off your loan sooner. This is called a prepayment – and it can help you shorten your mortgage amortization period (the time it takes for you to pay off your loan in full).

It’s also easier to get out of your open mortgage if you sell your home before your term ends. However, you may pay a higher interest rate, compared to a closed mortgage.²

Closed mortgage

A closed mortgage is the opposite of an open mortgage – it’s a lot more restrictive. For example, some lenders won’t let you make any prepayments towards your loan.

If you choose to make additional payments, you may face penalties. You may also face a penalty if you decide to leave your closed fixed-rate or closed variable-rate mortgage before the end of your term.

Closed mortgages are popular in Canada. You can access a lower interest rate for your loan – and many people don’t need the flexibility that comes with an open mortgage.

If you know you’ll be receiving a large lump sum, such as an inheritance, you can speak to your lender about your mortgage prepayment options.²

Convertible mortgage

A convertible mortgage is a flexible loan agreement that lets you change to a different type of mortgage at any time during your term.

You’ll usually take out your convertible mortgage for 6 months. If mortgage rates decrease during that time, you can convert your mortgage to a longer term. If rates increase or stay the same, you can renew your mortgage for another 6 months.

Convertible mortgages give you the flexibility to keep an eye on mortgage rates before committing to a longer term.

However, you’ll typically pay a slightly higher interest rate for your loan. You’ll also need to get approval for your mortgage renewal.

You can get your convertible mortgage from many major Canadian banks, such as BMO®, CIBC®, or RBC®.³

Hybrid mortgage

A hybrid mortgage, also known as a 50-50 mortgage, is a loan that combines the features of a fixed-rate and variable-rate mortgage.

You’ll pay back half of your loan on a fixed rate of interest. The other half is repaid under a variable rate.

If interest rates increase, you’ll only pay the increased rate on one half of your loan – and you can get the flexibility of a variable mortgage on the other half.

You may also be able to make additional payments towards your mortgage without penalties.⁴

Reverse mortgage

A reverse mortgage lets homeowners give up some equity in their home in exchange for a lump sum of money from the bank.

You can access a reverse mortgage in Canada at age 55 – and you can borrow up to 55% of your home’s equity.⁵

You can get your reverse mortgage from HomeEquity® or Equitable Bank®, with a range of different interest rates and term lengths.

This type of mortgage is a good option if you need money for unexpected expenses or renovations.⁶ However, it’s important to think carefully before taking out a reverse mortgage.

You won’t have to pay back your loan until you sell or die, but you could end up losing equity in your home. This type of loan also has a higher interest rate than a regular mortgage.⁵

Buying property abroad? Send money the hassle-free way with Wise

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Can US citizens get a mortgage in Canada?

Yes, US citizens can get a mortgage in Canada. You can apply for your mortgage as you would in the US, but you’ll need to meet your bank’s specific eligibility requirements.

You may need to prove you have a good credit score and provide a letter of reference from your bank in the US.

You may also need to make a 20% down payment, but this will depend on your bank.⁷ Compare banks and lenders before choosing the right mortgage for you.

In 2023, Canada passed a law that limited foreigners from purchasing some property, so make sure to reach out to a Canadian mortgage broker or lawyer for support with your application.⁸

Mortgages in Canada vs US

There are a few key differences between mortgages in Canada vs US. Let’s take a look.

Canada	US
You’ll pay your interest semi-annually⁹	You’ll pay your interest monthly⁹
In Canada, your amortization period is typically made up of shorter mortgage terms. You can renegotiate your interest rate or mortgage conditions at the end of each term¹⁰	In the US, your mortgage term is typically equal to the full length of your amortization period. Once you reach the end of your term, your mortgage will have been paid off¹⁰
Canadian mortgage lenders may charge more to get out of your mortgage before the end of your term⁹	In the US, you may pay more to set up your loan, but it’s usually easier to get out of your mortgage⁹
In Canada, you’ll need to be 55 to get a reverse mortgage – and you can borrow up to 55% of your home’s equity¹¹	In the US, you can’t apply for a reverse mortgage until you’re 62 years old. You’ll need to discuss how much you can borrow with your lender¹¹

What to consider when getting a mortgage

There are a few things to think about before getting your mortgage in Canada, including:

• payment frequency and schedule
• mortgage insurance
• interest rates and additional fees
• mortgage approval process

Consider how and when you’ll pay back your mortgage loan. You may also want to open a Canadian bank account, build up your credit score, and explore the cost-of-living in Canada before buying a property abroad.

Mortgages in Canada FAQs

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What is the most common type of mortgage in Canada?

The right Canadian mortgage type for you will depend on your financial situation and exactly what you’re looking for.

Closed mortgages are a popular choice. Although open mortgages give new buyers a little more flexibility, closed mortgages offer lower interest rates.

This means you may not be able to pay off your overseas mortgage as quickly, but you may end up paying less for your debt overall.

What are the 3 mortgage insurers in Canada?

Sagen®, Canada Guaranty®, and the Canada Mortgage and Housing Corporation® (CMHC) are the 3 default mortgage insurance providers in Canada.

You’ll need to pay mortgage insurance if you make a down payment of less than 20% for your home. Insurance protects lenders, but it can add to the cost of your loan.¹²

What is the longest term mortgage in Canada?

At the majority of Canadian lenders, you can get a mortgage for up to 30 years. However, this may depend on your individual circumstances.

For example, first-time buyers may only be able to get a 25-year amortization period – and mortgage applications are taken on a case-by-case basis.¹³

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Getting a mortgage is an important step if you want to buy property in Canada. You’ll need to think about how long it will take you to pay off your debt – and how much interest you’ll accrue.

You’ll also need to consider the flexibility of your mortgage before taking out a loan with your bank. It’s important to choose the right mortgage for you.

Heading to Canada? Use Wise to send and spend your money in Canada, the US, and beyond! There are no exchange rate markups, even for large amounts.

Sources

1. Forbes - Should I choose a fixed-rate or variable-rate mortgage?
2. Money.ca - Open vs closed mortgages
3. Wowa -What is a convertible mortgage?
4. First Foundation - What is a 50-50 mortgage or hybrid mortgage?
5. Canadian government - Reverse mortgages
6. Rate Hub - Reverse mortgages in Canada
7. Experts for Expats - Canadian mortgages for expats and non-residents
8. CMHC - Prohibition on the purchase of residential property by non-Canadians Act
9. Which Mortgage - Canadian and American mortgages
10. BMO - Differences between US and Canadian mortgages
11. Investopedia - Reverse mortgages: Canada vs the US
12. Nerd Wallet - Mortgage insurance in Canada
13. Rate Hub - Can I get a 30-year mortgage in Canada?

Sources checked 11.14.2024