In Canada, mortgages are classified as follows:

1. By Interest Type

  • Fixed-Rate Mortgage: Interest rate stays constant for the term. This provided confidence and peace of mind your rate and payments will stay the same for the full term you have chosen. 
  • Adjustable-Rate Mortgage: Interest rate fluctuates with the lender’s prime rate, and lenders normally set their prime rate to match the Bank of Canada prime lending rate, however not always. Payment fluctuation and adjusts up and down as rates are adjusted up and down.
  • Variable-Rate Mortgage: Interest rate fluctuates with the lender’s prime rate, and lenders normally set their prime rate to match the Bank of Canada prime lending rate, however not always. Payment however are set and remains the same even as rates are adjusted up and down. This also means that if rates go up the portion of interest will increase and the portion of principal repayment will decrease, potentially increasing the amortization.
  • Convertible-Rate Mortgage: An Adjustable-Rate mortgage that provides you with the option to lock in to a fixed rate by converting the term remaining into the same length or longer fixed rate with the lender holding the mortgage. A good option to review with your broker and to consider in a downward trending rate market, but with careful consideration and each lender has different requirement and the guidance of a professional will help protect your best interest. 

 

2. By Term Length

  • Short-to-Medium Term (1-5 years): Lower rates, less stability.
  • Medium-to-Long Term (6-10 years): Higher rates, more stability. 
  • In Canada lenders typically only offer partially amortized mortgage terms ranging from 1 to 10 years, unlike in the United State where you can obtain a fully amortized term loan for up to 30 years.

 

3. By Amortization Period

  • Amortization is the life of the loan, how long it is registered for, and how long it will take to pay the loan off making the minimum payments. The Standard Amortization is 25 years. A shortened amortization like 20 years will require higher payments but will result in less interest paid over the life of the loan. An extended amortization like 30 years will result in lower payments but more interest paid over the life of the loan. 

 

4. By Payment Type

  • Open Mortgage: Flexible Open prepayments, can be paid off anytime without penalty.  Recommended if your loan is for a short term and you intend to pay if off quickly to avoid lender penalties for breaking a mortgage prior to maturity.  Careful consideration is required as open terms have much higher interest rates than closed terms. Your broker will also review other options with you that may benefit you more and provide you with more savings.
  • Closed Mortgage: The term loan is closed, provides lowest rates, but have limited prepayment options in accordance to prepayment privileges. Any repayment of the loan above the prepayment privileged amount will be subject to the higher of a 3 month interest penalty or interest rate differential.

 

5. By Loan To Value

  • Conventional Mortgage Uninsurable: Down payment of 20% or more, no CMHC insurance. Rates will typically be slightly higher than with insurable loans.
  • Conventional Mortgage Insurable: Down payment of 20% or more, no CMHC insurance. Rates will typically be slightly higher than with insured loans unless downpayment is 35%.
  • High-Ratio Insured Mortgage: Less than 20% down payment, requires mortgage default insurance that protects the lender in case the borrower defaults, the three main mortgage default insurance providers in Canada are:Canada Mortgage and Housing Corporation (CMHC), Sagen (formerly Genworth Canada), and Canada Guaranty. High ratio insured loans will typically be the lowest rates offered by lenders.

 

6. By Lender Type

  • Prime Mortgage: For borrowers with good credit. Also called A Lending with Traditional loans offered by major banks and credit unions to borrowers with strong credit scores, stable income, and low debt levels.
  • Subprime Mortgage: For borrowers with poor credit, higher rates. Also called B Lending with Alternative loans offered by lenders such as mortgage companies or trust companies for borrowers with weaker credit, inconsistent income, or higher debt and blemished credit. Rates are higher than A lenders and typically includes a 1% lender fee.  Your broker will also help and guide you with a plan and steps to follow to move you back to A lending again.
  • Private Lending: Private lending for high-risk borrowers who don’t qualify for A or B lenders. Also called C lending offered by Private Lenders and MIC Mortgage Investment Corporation. These loans typically have the highest interest rates, flexible terms, and shorter durations, with higher lender fees, higher legal fees and brokerage fees.  Your broker will also help and guide you with a plan and steps to follow to move you back to A lending again.

 

Always consult with your trusted mortgage professional to provide you with all the options, knowledge, insight and guidance needed to help you make the best decisions that will most benefit your specific needs, preferences and custom requirements.