Mortgage Basics
Mortgage Types in Canada: A Complete Overview
Compare the types of mortgages in Canada: fixed vs variable rates, open vs closed terms, high-ratio vs conventional loans, and other specialty options.
The main types of mortgages in Canada split along three axes: how the interest rate is set (fixed or variable), whether you can prepay without a penalty (open or closed), and whether the loan is insured by a provider such as CMHC (high-ratio) or not (conventional). Add term length, amortization, and payment frequency, and you get dozens of possible combinations — but only a handful of decisions genuinely change what you pay and how flexible you are.
Every Canadian mortgage is a secured loan registered against your property, so if you stop paying, the lender can take the home. Everything else is a variable layered on top of that core structure. If you are brand new to this, start with what a mortgage is and how Canadian mortgages work, then use the three choices below as your checklist:
- Rate type: fixed, variable, or adjustable — this drives how your payment behaves.
- Prepayment structure: open or closed — this drives how freely you can pay the balance down.
- Insurance status: high-ratio or conventional — this drives cost and lender rules.
Fixed-rate vs variable-rate mortgages
Rate type is the single biggest driver of how your payment feels month to month.
Fixed-rate mortgages
The interest rate is locked for your whole term. Your payment is predictable, which makes budgeting simple, and you are protected if rates climb. The trade-off is that if rates fall, you keep paying the old, higher rate until your term ends or you break the mortgage — and breaking a fixed mortgage usually triggers a penalty that can include the interest rate differential (IRD).
Variable-rate mortgages
The rate moves with your lender's prime rate, which in turn tracks the Bank of Canada policy rate. Two flavours exist: a true variable-rate mortgage, where the payment changes as prime moves, and an adjustable-rate mortgage, where the payment stays fixed and more or less of it goes toward interest. Variable pricing is often lower at the start, but your payment can rise.
| Feature | Fixed rate | Variable rate |
|---|---|---|
| Payment amount | Set for the term | Can change when prime moves |
| Cost if rates fall | Unchanged | Typically falls |
| Cost if rates rise | Unchanged | Typically rises |
| Typical break penalty | Greater of three months' interest or IRD | Usually three months' interest |
| Suits buyers who | Want predictable payments | Can absorb payment swings |
Neither type is automatically better. Fixed suits buyers who value certainty; variable suits buyers who can handle a moving payment and want the benefit if rates drop. Weigh both against your budget in the fixed vs variable mortgage rates guide before you commit.
Open vs closed mortgages
A closed mortgage locks you in for the term and charges a penalty if you pay it off early beyond your prepayment privileges. Most Canadians choose closed because the rate is lower. An open mortgage lets you prepay any amount at any time with no penalty, but the rate is higher — it is usually a short-term tool, not a long-term home. Read open vs closed mortgage for the full comparison, and note that even many closed mortgages allow a percentage of the balance each year plus increased regular payments.
High-ratio (insured) vs conventional mortgages
When your down payment falls below the threshold that requires default insurance — typically 20% — your lender must insure the loan through CMHC, Sagen, or Canada Guaranty. The mortgage default insurance premium protects the lender, not you, and is usually added to your mortgage balance. Loans with that insurance are called high-ratio; loans without it are conventional.
Default insurance lets you buy with a smaller down payment, but it adds cost and means your file must meet insurer rules. See how the premium is calculated in mortgage default insurance in Canada, explained. Federally regulated lenders also follow OSFI Guideline B-20, which sets underwriting standards for both insured and uninsured mortgages.
Term, amortization, and payment structure
The term is the length of your current contract with the lender — commonly five years, though shorter and longer terms exist. Your amortization is the total time to pay the loan off, often up to 25 years. A short term with a long amortization gives you flexibility to renegotiate sooner; a long term gives you rate certainty. Lenders price these two clocks separately, and payment frequency (monthly, bi-weekly, accelerated) changes how much interest you pay over time.
Specialty mortgage types worth knowing
- Home equity line of credit (HELOC): a revolving credit line secured against your home, often with interest-only payment options.
- Second mortgage: a loan registered behind your first mortgage, frequently used to access equity or consolidate debt.
- Reverse mortgage: lets older homeowners convert equity into cash without regular payments, with the balance growing over time.
- Bridge financing: short-term funds that cover the gap when you buy before your current home sells.
- Private mortgage: lending from a private investor, typically at higher rates, for borrowers who do not meet bank criteria.
Each carries a different risk profile. A HELOC or second mortgage raises the total debt secured by your home, while a reverse mortgage reduces the equity your estate ultimately keeps.
How lenders decide which mortgage types you qualify for
Two ratios anchor the decision: your gross debt service (GDS) ratio and your total debt service (TDS) ratio. Lenders compare your housing costs and total debt against your income, then apply the federal mortgage stress test — you must qualify at the higher of your contract rate plus two percentage points or the published qualifying-rate floor. Confirm the current floor with OSFI or your lender.
Credit score, down payment source, income type, and property type all feed in too. Self-employed borrowers and buyers with bruised credit face extra documentation. See the Canadian mortgage stress test, explained for the mechanics, and if this is your first purchase, look into programs such as the RRSP Home Buyers' Plan and the First Home Savings Account (FHSA).
Choosing the mortgage type that fits you
Work through the three core choices in order. First, pick the rate type you could live with if rates move against you. Second, decide whether you need open prepayment flexibility or want the lower rate of a closed mortgage. Third, check whether your down payment pushes you into insured territory and what that adds to your cost. Then compare total cost, not just the headline rate — penalties, discharge fees, and land transfer tax are part of the picture. Confirm current figures and rules with your lender, an insurer, or the CMHC website before you sign.
Frequently asked questions
What are the main types of mortgages in Canada?
Canadian mortgages are usually described by three features: rate type (fixed, variable, or adjustable), prepayment structure (open or closed), and insurance status (high-ratio or conventional). On top of that sit term length, amortization, and payment frequency. Specialty products such as HELOCs, second mortgages, reverse mortgages, bridge financing, and private lending round out the market.
Is a fixed or variable mortgage better in Canada?
Neither is universally better. A fixed rate gives you a predictable payment for the whole term and protects you if rates rise. A variable rate usually starts lower and falls with prime, but your payment can rise when the Bank of Canada raises its policy rate. Choose based on how much payment uncertainty your budget can absorb.
What is a high-ratio mortgage in Canada?
A high-ratio mortgage is one where your down payment is below the threshold that requires default insurance, typically 20%. The lender must then insure the loan through CMHC, Sagen, or Canada Guaranty. The insurance premium protects the lender and is usually added to your mortgage balance, so you borrow slightly more.
What is an open mortgage?
An open mortgage lets you prepay any amount at any time without a penalty, which suits buyers expecting a lump sum such as a home sale or bonus. The trade-off is a higher interest rate than a closed mortgage. Most borrowers choose closed terms for the lower rate and use prepayment privileges instead.