Types of Mortgages in Canada (2025): A Complete Beginner’s Guide

What is a Mortgage?

A mortgage is a loan you take from a lender — usually a bank or credit union — to buy a home. You agree to pay back the money over time, with interest. Your home acts as collateral, which means if you stop paying, the lender can take ownership of it. Most Canadians choose mortgage terms of 25 to 30 years.

Fixed Rate vs Variable Rate Mortgages

A fixed rate mortgage means your interest rate stays the same for the full term — usually 1 to 5 years. This gives you predictable payments, which helps with budgeting. A variable rate mortgage means your interest rate can go up or down depending on the market. If the Bank of Canada changes its overnight rate, your payment may change too. In 2025, with rates fluctuating, some buyers are choosing fixed rates for peace of mind, while others take variable hoping to save if rates drop.

Open vs Closed Mortgages

An open mortgage gives you full freedom to pay off your loan early — with no penalties. It’s perfect if you’re planning to sell or refinance soon. But the trade-off? Open mortgages usually come with higher interest rates. A closed mortgage is more common and offers lower rates — but if you break it early, you’ll face penalties. Most Canadians go with closed mortgages unless they expect a big financial change in the near future.

High-Ratio vs Conventional Mortgages

A high-ratio mortgage happens when your down payment is less than 20%. That means you’ll need to get mortgage insurance from CMHC or a similar provider. This insurance protects the lender, not you, and adds to your costs. A conventional mortgage is when your down payment is 20% or more — no insurance needed. If you’re a first-time buyer, high-ratio mortgages are common, but they do make your monthly payments slightly higher.

Insured vs Uninsured Mortgages

An insured mortgage means the lender is protected by default insurance (like CMHC), usually because the buyer had a small down payment. Uninsured mortgages don’t need this — typically because of larger down payments or refinancing. Lenders tend to offer better rates on insured mortgages since they carry less risk. But remember, the insurance premium is paid by you, the borrower, not the lender.

Amortization Period: Short vs Long Term

The amortization period is the total time it will take you to pay off your mortgage. Most people choose 25 years, but it can be shorter or longer. A longer term means smaller monthly payments but more interest overall. A shorter term means higher payments but you’ll own your home faster and pay less interest. Some buyers choose 30 years to qualify for a bigger mortgage, while others stick to 20 or 25 to become debt-free sooner.

A-Lenders vs B-Lenders vs Private Lenders

A-lenders include major banks and credit unions. They offer the best rates but have strict approval rules. You’ll need a good credit score, stable income, and a low debt ratio. B-lenders are alternative lenders who accept riskier borrowers — maybe your credit isn’t perfect or you’re self-employed. Their rates are slightly higher. Private lenders are for people who can’t qualify elsewhere. They don’t look at credit scores much, but their rates are much higher and terms are shorter — usually 1 to 2 years.

Reverse Mortgages and HELOCs

A reverse mortgage lets older homeowners borrow against their home equity and receive tax-free cash — no monthly payments needed. It’s only available if you’re 55 or older and have significant home value. A HELOC (Home Equity Line of Credit) lets you borrow money as needed, like a credit card, using your home’s equity as collateral. You only pay interest on the amount you use. Both options let you tap into your home’s value, but they come with different rules and risks.

Mortgage Renewal vs Refinance

When your mortgage term ends (say after 5 years), you’ll need to renew. That’s called mortgage renewal — you get a new rate and term, but your balance stays the same. Refinancing means taking out a brand-new mortgage — often to get better rates, change lenders, or access home equity. You may extend or shorten the amortization too. Renewal is routine; refinancing is a strategic choice when your needs or goals change.

Real-Life Example: Vanessa’s Mortgage Puzzle

Vanessa, a 34-year-old marketing consultant from Halifax, was overwhelmed by her mortgage choices. She was debating between fixed and variable rates, unsure about whether to go with an A-lender or a B-lender since she was newly self-employed. After researching, she chose a variable-rate mortgage with a B-lender that allowed 20% prepayment each year. It came with a slightly higher rate than her bank, but she valued the flexibility. She also avoided the CMHC premium by putting down 22%, making her mortgage uninsured and more cost-efficient in the long run.

Final Thoughts from a Mortgage Expert

There’s no single ‘best’ mortgage — only the one that fits your life. Understanding the different types of mortgages helps you feel in control and confident. Whether you’re risk-averse and want a fixed rate or are comfortable with market movement and lean toward variable, the goal is the same: own your home on your terms. Always compare options, ask your broker questions, and make sure your mortgage matches your financial comfort zone — not just what your bank suggests.