The Different Types of Mortgages Explained (A Canadian Homeowner's Guide)

If you're buying a home in the Greater Toronto Area — or refinancing the one you already own — the mortgage you choose can mean a difference of tens of thousands of dollars over the life of the loan. But "mortgage" isn't one thing. It's a category, and under it sit several very different products with very different rules.

This guide breaks down the main types of mortgages available in Canada, what each one is good for, and how to think about which one fits your situation.

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First, the Two Big Decisions

Before getting into specific mortgage types, every mortgage in Canada comes with two core choices that shape everything else:

1. Term vs. Amortization

• Amortization is the total length of time to pay off the mortgage — typically 25 years (up to 30 for some buyers, and longer for refinances).
• Term is the length of your current contract — usually 1 to 5 years. At the end of each term, you renew at whatever rates are available then.

2. Fixed vs. Variable Rate

• Fixed rate — Your interest rate stays the same for the entire term. Your payment never changes. Predictable, but you pay a premium for that certainty.
• Variable rate — Your rate moves with your lender's prime rate. Payments can change (or, in some products, the amount going to principal vs. interest shifts). Historically cheaper over time, but riskier in a rising-rate environment.

With those two decisions in mind, here are the actual mortgage types you'll encounter.

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1. Conventional Mortgage

A conventional mortgage is the standard loan for buyers with a down payment of 20% or more. Because you're putting more down, the loan is considered lower risk and doesn't require mortgage default insurance.

Best for: Buyers who have a solid down payment and want to avoid insurance premiums.

Watch out for: Tying up more cash in the home that might be better used elsewhere.

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2. High-Ratio (Insured) Mortgage

If your down payment is less than 20%, you're required by law to get mortgage default insurance. In Canada, that insurance comes from one of three providers:

• CMHC (Canada Mortgage and Housing Corporation)
• Sagen (formerly Genworth Canada)
• Canada Guaranty

The premium is a percentage of the loan amount, added to your mortgage and paid off over time. It protects the lender, not you — if you default, the insurer covers the lender's loss.

Best for: First-time buyers and anyone who can't reach the 20% threshold.

Watch out for: The premium can add thousands to your loan. On a $700,000 home with 5% down, the CMHC premium alone can exceed $20,000.

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3. Fixed-Rate Mortgage

As the name suggests, the interest rate is locked for the full term. In Canada, the most common terms are 3 and 5 years.

Pros:

• Payment certainty — you always know your housing cost
• Easy to budget around
• No surprises if rates spike

Cons:

• Rates are typically higher than variable at signing
• Breaking a fixed-rate mortgage early can trigger large penalties (often the greater of three months' interest or an interest-rate differential)

Best for: Risk-averse buyers, those on tight budgets, and anyone who'd lose sleep over rate changes.

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4. Variable-Rate Mortgage

Your rate tracks the lender's prime rate, which moves with the Bank of Canada's overnight rate. There are two flavours:

• Adjustable-rate — Your payment changes when the prime rate changes.
• Variable-rate (fixed payment) — Your payment stays the same, but the split between interest and principal shifts. If rates rise enough, you could hit a "trigger rate" where your payment no longer covers interest.

Pros:

• Historically cheaper than fixed over the long run
• Lower penalties to break early (usually three months' interest)
• You benefit when rates fall

Cons:

• Payments can rise unexpectedly
• Harder to budget for

Best for: Buyers with cash-flow flexibility who can absorb rate increases.

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5. Open vs. Closed Mortgages

This describes how much flexibility you have to pay the mortgage off early.

• Open mortgage — You can pay off any amount, at any time, with no penalty. Rates are higher. Good if you expect a lump sum (a sale, an inheritance, a bonus) and want to clear the debt.
• Closed mortgage — Lower rates, but you're limited in how much extra you can pay each year (typically 10–20% of the original principal). Breaking it early triggers penalties.

Best for: Open — short-term needs or expected payoffs. Closed — most long-term owners.

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6. Hybrid (Part Fixed, Part Variable) Mortgage

Some lenders let you split your mortgage into portions — say, 50% fixed and 50% variable. You get some rate certainty and some exposure to potential rate drops.

Best for: Buyers who can't decide and want to hedge both ways.

Watch out for: More complex to manage and renew, and not every lender offers it.

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7. Cash-Back Mortgage

A cash-back mortgage gives you a percentage of the mortgage amount (often 5–7%) back in cash at closing. It's appealing when you're cash-strapped after a down payment.

The catch: The rate is higher than a standard mortgage, and if you break the mortgage early, you may have to repay some or all of the cash-back.

Best for: Buyers who genuinely need the cash and plan to stay put for the full term.

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8. Refinance / Home Equity Line of Credit (HELOC)

Once you own a home and have built equity, you can borrow against it:

• Refinance — Replace your existing mortgage with a larger one and take the difference in cash. You can borrow up to 80% of your home's value.
• HELOC — A revolving line of credit secured against your home, usually up to 65% of its value (or 80% combined with a mortgage). Interest-only payments, flexible draws.

Best for: Renovations, debt consolidation, or investment — used carefully.

Watch out for: You're putting your home on the line. Rising rates can turn a manageable HELOC into a serious monthly burden.

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9. Reverse Mortgage

Available to Canadian homeowners 55 and older, a reverse mortgage lets you tap into your home equity without selling or making regular payments. The loan — plus interest — is repaid when you sell the home or pass away.

Best for: Older owners who are equity-rich but cash-poor and want to stay in their home.

Watch out for: The balance compounds and grows over time, eating into the equity you (or your heirs) eventually receive.

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10. Private / Alternative Mortgages

When you can't qualify with a traditional lender (bad credit, self-employed with hard-to-verify income, or a unique property), private lenders offer short-term mortgages — usually 1-year terms, interest-only, with higher rates and fees.

Best for: Bridging a short-term situation while you repair credit or stabilize income.

Watch out for: High rates, fees, and the need to refinance or sell at the end of the term. This is a stopgap, not a long-term solution.

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A Quick Comparison

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How to Choose

There's no single "best" mortgage — only the best one for your situation. Ask yourself:

1. How much can I put down? This determines conventional vs. high-ratio.
2. Can I handle payment changes? This drives fixed vs. variable.
3. Do I expect a lump sum soon? This points to open vs. closed.
4. How long will I stay in this home? Short stays favour flexibility; long stays favour stability.
5. What's my risk tolerance? Be honest — not aspirational.

And always compare offers from more than one lender. A mortgage broker can shop your file across banks, credit unions, and monoline lenders to find the best combination of rate and terms.

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The Bottom Line

A mortgage is the largest financial decision most Canadians will ever make. Understanding the different types — and the trade-offs built into each — is what turns a default choice into an informed one.

And if you're a homeowner who's feeling squeezed by your current mortgage — whether it's a renewal shock, a HELOC that's grown beyond comfort, or a private mortgage coming due — remember you have options beyond refinancing. Selling to a cash buyer like Skyway lets you walk away from the debt and the property in one move, with no financing conditions and a closing date you choose. Get a free, no-obligation offer to see what your home is worth today.