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A Comparison of the Various Mortgage Plans in the Canadian Market


The Canadian real estate market is booming and flourishing again after a quick recovery from the recent recession that hit almost all parts of the world. There is a flurry to invest upon the best choice of real estate amongst buyers.

Be it a small house or a big villa, the decision to invest in real estate requires critical thinking and adequate research.

Mortgage plans remain a buyer’s best friend when they are looking for quick and easy access to their dream abode. However, with the constant fluctuation of mortgage rates in the market, it becomes difficult to decide upon and select the best plan that suits your needs.

Therefore, it is necessary to acquire a thorough knowledge about the various mortgage plans available in the Canadian real estate market and get updates about the latest trends and upturns of the rates.

Basic Types of Mortgage Plans

Before discussing the various mortgage plans that are in effect in the market, it is important to know about the two most important terms regarding the mortgage plan. These are the MORTGAGE TERM and the AMORTIZATION PERIOD.

The Mortgage Term specifies the amount of time the buyer agrees upon to confer and adhere to the rules and rates set by the lending mortgage institution or broker. The mortgage plans vary from 6 months to 10 years and you can choose the one that suits your needs. After the end of a mortgage term, the rates reset to the current interest rate of the market, and remain active for the rest of the payment period, until the term expires again.

On the other hand, the Amortization Period involves the entire time frame that you will spend in completely paying back the mortgage loan. The longest mortgage amortization period in Canada is of 30 years. Although there are a variety of mortgage plans currently established in the market, some of the basic and most popular ones are as follows:

Fixed Rate Mortgage

Fixed rate mortgage, as the name states, remains fixed at a particular previously decided rate throughout the term of the payment. The debtor and the creditor decide upon the rate of payment and it remains unchanged throughout the course of the term. Almost 66 percent, that is a wide majority of the Canadian investors, opt for fixed rate mortgage. You should opt for a fixed rate mortgage if the market is stagnant at a low rate and you do not see any chances of further significant reduction in the future.

The main advantage of this plan is that you do not have any concerns about the budget or anxiety regarding the increase of rates. Due to this reason, a vast majority of homebuyers opt for fixed mortgage rates for a carefree and relaxed payment period.

However, you should not go for a fixed rate mortgage plan if they are going high or if there is a considerably large difference between the fixed and variable mortgage rates. Opting for fixed rates in this case will cost you more in the long run and there will be no chance of reduction in the course of payment in the future.

Below are some of the most popular terms of payments for fixed mortgage plans. For each of term, the interest rate remains fixed for the specified number of years and after the expiry of the term, the rates are updated to the current mortgage interest rate defined by the Bank of Canada.

  • Ø 3-year plan

A 3 year fixed mortgage plan means that you are bound to the interest rate set by your lender for three years. It is a particularly short-term mortgage rate, and almost 20 percent of the population in Canada, currently, holds a three-year mortgage.

The advantage of a short-term mortgage of three years comes handy in situations when the market rates are stuck, and look to remain stagnant, at a considerably low amount for the time. This means you can enjoy lower rates and save money while your mortgage term is active.

  • Ø 5-year plan

The five-year plan is by and large the most popular mortgage plan in Canada at the moment. With a striking 66 percent of the population locked in at the five-year term plan, it holds optimum security and safety for the buyer.

If the mortgage is started at a time when the rates are very low, the debtor has the advantage of paying the same rates over a long period without having to worry about the rise in the interest rate over the years.

  • Ø 10-year plan

The 10-year plan is best for you if you strike gold, acquire the mortgage at very low rates, and continue them for a long period of a decade. However, they are unadvisable if the market is going high, as that will result in you paying a hefty amount of interest over the years.

Variable Rate Mortgage

A variable rate mortgage means that the mortgage payment changes overtime as the mortgage rates change in the market. Variable rate mortgage involves a mutual agreement about rates between the two parties, deciding the mortgage term plan. The course of payment of the mortgage loan is decided upon the current interest rate devised by the Bank of Canada. The Bank of Canada is the decisive authority for mortgage rates for all institutions in Canada.

The benefit involved with an adjustable or variable mortgage plan is that the course of payment is dependent on the current prime rate and a decrease in the rate can cause the payment amount to decrease by a large extent.

However, there is a decreased sense of security when you opt for variable rates because a sudden up rise in the rate may cause you financial instability and problems. Variable rates are highly recommended if you see a downfall in the interest rate of the mortgage market in the future.

The needs and concerns of every homebuyer are different. Therefore, do adequate research on current rates and plans, and choose the one that will make your dream of a new house come true.

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