Although the vast majority of information on this web site will apply to Canadians as well as those in the U.S., there are some important variations in the way mortgages are structured in Canada that bear discussion.
Types of Mortgages
Conventional: This is a mortgage that is for 75% or less of the value of a home and would require a minimum of 25% downpayment.
This higher amount of downpayment will generally equate to a lower interest rate.
High-Ratio: Those mortgages with less than 25% down (sometimes as low as 5%) are considered to be high-ratio mortgages. Less downpayment will convert to a higher interest rate than a conventional mortgage.
This is the number of years that the monthly payments are based on–as opposed to the term, which is the period that the parameters of the loan (such as interest rate) are structured. Amortization will usually be in 15, 20 or 25 year periods. The longer the period of amortization the lower the payment but the amount of interest paid will be larger.
The term is the length of time that the mortgage (including the interest rate) is in effect. Terms are commonly for periods from 6 months up to 10 years, at which time the loan would need to be paid off or renewed with the interest rate adjusted to then current market conditions. In general, the shorter the term, the lower the interest rate and the longer the term, the higher the interest rate.
Open and Closed Mortgages
With an open mortgage, the loan can be repaid at any time without penalty. With closed mortgages, there are frequently penalties for paying back the mortgage, either in part or full, before the end of the term.
Fixed and Variable Rates
In a fixed rate loan, the interest rate remains constant through the entire term. With a variable rate mortgage, the interest rate will adjust on a monthly basis, causing the payment to either rise or fall.