{"id":210572,"date":"2024-12-09T12:30:00","date_gmt":"2024-12-09T17:30:00","guid":{"rendered":"https:\/\/milesopedia.com\/news\/how-do-mortgages-work-in-canada\/"},"modified":"2024-12-18T09:38:35","modified_gmt":"2024-12-18T14:38:35","slug":"how-do-you-work-hypothecary-canada","status":"publish","type":"post","link":"https:\/\/milesopedia.com\/en\/personal-finance\/mortgages\/how-do-you-work-hypothecary-canada\/","title":{"rendered":"How do mortgages work in Canada?"},"content":{"rendered":"

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When you want to buy a house<\/a>, it is essential to understand how mortgages work in Canada. Whether you are a native of Canada or coming from abroad, it can be quite complicated. Additionally, sometimes the government changes the rules<\/a> regarding down payments and amortization, among other things, to facilitate homeownership. In this guide, we explain the difference between the types of mortgages in Canada, as well as fixed and variable rates, terms, and amortization periods.<\/p>\n

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Few people have the necessary cash to buy a house outright. Thus, the portion of the purchase price that you pay will be your down payment. Then, to cover the difference between the purchase price and your down payment, you will need a mortgage, which you will repay over a long period (up to 30 years).<\/p>\n

A mortgage is a legal contract between you and your lender: bank, credit union, finance company, or mortgage investment company. If you do not comply with the terms of your mortgage, such as making mortgage payments, the lender has the right to repossess your house.<\/p>\n

Your mortgage payments generally include the principal borrowed, interest, mortgage insurance (if applicable), and sometimes property taxes (required by some lenders).<\/p>\n

Over the duration of your mortgage repayment, you must renew your contract several times (e.g., every 5 years) until your mortgage is fully paid off. If you move or need to sell your house for another reason, you can terminate your contract. However, you will have to pay a penalty.<\/p>\n

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There are different types of mortgages in Canada, such as open mortgages and closed mortgages. Each has its own advantages and disadvantages. Choose a mortgage based on your situation and needs.<\/p>\n

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Types<\/th>\nCharacteristics<\/th>\n<\/tr>\n<\/thead>\n
Open mortgage<\/strong><\/td>\nAn open mortgage gives you the ability to pay off your mortgage balance as quickly as you want, without penalties or high fees. However, their interest rates are higher than closed mortgages. It is a good choice if you want to regularly make an additional payment on your mortgage or if you plan to repay your mortgage soon.<\/td>\n<\/tr>\n
Closed mortgage<\/strong><\/td>\nA closed mortgage generally has a lower interest rate than an open mortgage. However, it comes with a limit on the additional amount you can pay on your mortgage each year. This prepayment limit varies from lender to lender. It is a good choice if you plan to keep your house for the term of your mortgage and if the prepayment limit meets your needs.<\/td>\n<\/tr>\n
Transferable mortgage<\/strong><\/td>\nA transferable mortgage allows you to transfer your existing mortgage if you sell your home and buy another one. It is a good choice if the rate on your current mortgage is advantageous compared to current rates and if you want to avoid penalties for terminating your mortgage contract.<\/td>\n<\/tr>\n
Reverse mortgage<\/strong><\/td>\nA reverse mortgage allows you to receive cash value for the equity in your home while you still live there. It is an option for seniors who need extra money to fund their retirement.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

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To compare rates and types of mortgages, try our mortgage rate comparison tool<\/a>.<\/p>\n

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The first element to consider when obtaining a mortgage loan in Canada is the down payment<\/a>. The down payment is the amount you need to save and pay for the purchase of your home. This amount will be deducted from the purchase price and your mortgage will cover the difference.<\/p>\n

In Canada, the minimum down payment you must make depends on the purchase price of your home. It ranges from 5% to 20% of the purchase price. However, in some cases, your lender may require a higher down payment.<\/p>\n

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Purchase price<\/th>\nMinimum down payment<\/th>\n<\/tr>\n<\/thead>\n
$0 to $499,999<\/td>\n5% of the purchase price<\/td>\n<\/tr>\n
$500,000 to $999,999<\/td>\n5% of the first $500,000 of the purchase price and 10% on the amount exceeding $500,000<\/td>\n<\/tr>\n
$1,000,000 and above<\/td>\n20% of the purchase price<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

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If you make a down payment of less than 20% of the purchase price of your home, you will need to pay mortgage loan insurance.<\/p>\n

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The mortgage pre-approval<\/a> allows you to know the maximum purchase price of your future home. This way, you can search for properties that fit your budget and be confident that you will obtain a mortgage loan. To get a mortgage pre-approval, your lender will ask for the following information:<\/p>\n