Mortgage Basics in Canada: What You Need to Know Before You Borrow

Did you know the word "mortgage" comes from a French term meaning "death pledge"? Sounds intense—but understanding mortgages doesn’t have to be scary.

In this guide, we’ll break down exactly what a mortgage is, the different types of mortgage products available in Canada, and what you need to know to secure the best one for your financial situation.

Whether you're a first-time buyer or looking to refinance, this is the mortgage crash course you’ve been waiting for.

What Is a Mortgage?

A mortgage is a loan you take out to buy property. For example, if a home costs $500,000 and you put down $50,000, the remaining $450,000 is your mortgage.

If your down payment is less than 20%, you’ll need mortgage insurance, which protects the lender—not you. Canada’s three providers are:

• CMHC (Canada Mortgage and Housing Corporation)

• Sagen (formerly Genworth)

• Canada Guaranty

If you put more than 20% down, mortgage insurance isn’t required. However, you may still need to pay for an appraisal.

Fixed vs. Variable Rate Mortgages

Fixed Rate Mortgage

• Interest rate stays the same for the term

• Great for budgeting and peace of mind

• Best for those on fixed incomes or tight budgets

Variable Rate Mortgage

• Rate changes based on the Bank of Canada’s prime rate

• Usually lower interest in the long term

• Best for those comfortable with some risk and financial flexibility

Even with a variable rate, you can switch to fixed later if rates climb—just check your mortgage agreement.

Amortization vs. Term

• Amortization is the total life of the mortgage (typically 25–30 years)

• Term is how long your interest rate is locked in (usually 1–10 years)

New as of August 1, 2024: First-time buyers can now access a 30-year amortization for insured new construction or pre-sale homes.

Open vs. Closed Mortgages

Open Mortgage

• Allows full repayment at any time without penalties

• Ideal if you expect a financial windfall

• Comes with higher interest rates

Closed Mortgage

• Limited prepayment flexibility

• Lower rates than open mortgages

• Penalties apply if you pay off early or exceed prepayment limits

Payment Frequency: Accelerated vs. Standard

You can choose how often you make payments:

• Standard: Monthly, semi-monthly, bi-weekly, or weekly

• Accelerated: Bi-weekly or weekly payments that slightly increase frequency, helping you pay off your mortgage faster

To know if you’re on an accelerated schedule:

• Take your monthly payment and divide it by 2 (for bi-weekly) or 4 (for weekly)

• If your payment matches or exceeds this, you're on an accelerated plan

Accelerated weekly payments are ideal for improved cash flow and long-term savings.

Mortgage Pre-Approvals: Fully Underwritten vs. Not

Non-Underwritten Pre-Approvals

• Instant approvals with minimal documentation

• Not always reliable

Fully Underwritten Pre-Approvals

• Include a full review of employment docs, income, and financials

• Much more accurate and reliable

We highly recommend getting fully underwritten before making an offer.

Should You Use a Bank or a Mortgage Broker?

Banks

• Great for everyday banking needs

• Limited to their own mortgage products

Mortgage Brokers

• Access to a wide variety of lenders

• Often better rates and terms

• Can help find a mortgage that fits your exact needs

In most cases, working with a broker gives you more flexibility and better options. Mortgage payments will still come out of your bank account—just like any other bill.

What Do Lenders Look At?

• Credit score

• Income and job stability

• Down payment amount

• The property itself (used as collateral)

More marketable properties = more mortgage options.

Need Help Choosing the Right Mortgage?