Different Types of Mortgages

There are many different types of mortgages available, so before you choose, here’s some information you will want to know.

Conventional  vs. High Ratio Mortgage

Conventional / Low Ratio Mortgages

A mortgage where the down payment is equal to 20% or more of the property’s value/purchase price. A low-ratio mortgage does not normally require mortgage protection insurance.

High Ratio Mortgages

A High-Ratio Mortgage is one where the borrower is contributing less than 20% of the value/purchase price of the property as the down payment. These types of mortgages must be have mortgage protection insurance through Canada Mortgage and Housing Corporation (CMHC), Genworth Financial or Canada Guarantee; the three mortgage insurance companies in Canada.

Open Mortgages

An open mortgage allows you the flexibility to repay the mortgage at any time without penalty. Open mortgages usually have shorter terms, but can include some variable rate/longer terms as well.  Mortgage rates on Open Mortgages are typically higher than on Closed Mortgages with similar terms.

Closed Mortgages

A closed mortgage is a mortgage agreement that cannot be prepaid, renegotiated or refinanced before maturity, except according to its terms. 

Fixed Rate Mortgages

The interest rate of a fixed rate mortgage is determined and locked in for the term of the mortgage. Lenders often offer different prepayment options allowing for quicker repayment of the mortgage and for partial or full repayment of the mortgage.

Variable Rate Mortgages (VRM) / Adjustable Rate Mortgages (ARM)

These types of loans differ from a fixed rate mortgage in that the mortgage rate may be changed during the term of the mortgage. Generally, these mortgages are initially set up like a standard loan, based on the current interest rate. The mortgage is reviewed at specified intervals and if the market interest rate has changed, either changing the size of the payment or the length of the amortization period (or a combination of both), the lender then alters the mortgage repayment plan.