Mortgages in Canada


A mortgage is a loan from a Bank or a Financial Institution to purchase a real property such as a home, building or land.

Mortgage can be obtained from financial institution e.g. Banks, Credit Union or Private lenders. In Canada banks provide mortgage loans to people with good credit or borrowing history. Below are the five largest banks of Canada.

Royal Bank of Canada
TD Canada Trust Bank
Scotiabank
BMO Bank of Montreal
CIBC

The mortgages are also available through other banks (e.g. HSBC, ICICI Bank, Home Trust bank etc), credit unions (Vancity, Coast Capital Savings, Meridian Credit Union and private investors. Private investors can be accessed through licensed mortgage brokers.

The mortgage loan are available for up to 30 years, however 25 years amortization is most popular.
The purchaser should provide a down payment which is typically between 5% - 20% of purchase price of the property. Remaining amount is provided by the bank at a particular interest rate. The purchaser has to provide a monthly payment to the bank which consists of Interest+Principal. The mortgage agreement is valid for typically 5 years (this is called term). After term expiry the customer can redo the mortgage with the existing lender at the interest rate which is prevalent then  or get loan from any other lender. There is a penalty in case the borrower wants to end the agreement before the term expiry.  All these clauses are mentioned in the mortgage agreement, and the transaction is executed by a lawyer or a public notary. The term can be closed i.e. the contact cannot be broken without penalty before the term ends, and also can be open, where the borrower can end the contract anytime without penalty. However the open term mortgage rate is higher.

For customers who provide < 20% down payment will need to get their mortgage insured from CMHC, and the cost is added to the mortgage.

The mortgage can be fixed interest rate or variable rate. 

In fixed rate mortgage, the interest rate that is decided at start of the mortgage will remain the same till the end of the term, even if the prime rate (or the rate set by Bank of Canada) changes.

In variable rate mortgage the interest component of the monthly payment can change, keeping the total payment amount same. i.e. if the prime rate increases, bank will take greater percentage of the monthly payment towards interest and less for principal.

Generally variable rate mortgage are preferred, however if the interest rates are expected to rise,  fixed rate makes sense.

The available mortgage rates are published through bank sites or broker sites. One of them is the ratehub.

 

CMHC

 

 

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