Mortgage basics
Fixed vs variable, open vs closed, amortization, CMHC insurance, and why going to a broker first usually gets you a better deal. Plain English, no jargon.
Fixed vs variable rate
A fixed-rate mortgage locks your interest rate for the full term — usually five years. Your payment stays identical every month, regardless of what happens to the Bank of Canada's interest rate. This predictability has real value: you can plan your budget with confidence. Fixed rates are typically slightly higher than variable rates at the time you sign, because you're paying for that certainty.
A variable-rate mortgage moves with the prime rate. When the Bank of Canada raises rates, your rate (and usually your payment) goes up. When rates fall, you pay less. Historically, variable rates have cost less over the long run — but the 2022–2023 rate hike cycle was a painful reminder that "historically" doesn't mean "always." Many Canadians on variable rates saw their payments rise by hundreds of dollars a month over a 12-month period. Both options are valid. The right choice depends on your tolerance for uncertainty and how tight your monthly budget is.
Fixed rate
+ Predictable monthly payments
+ Protection if rates rise
- Usually higher initial rate
- Breaking early costs more (IRD penalty)
Variable rate
+ Often lower initial rate
+ Simpler early exit penalty (3 months interest)
- Payments can rise significantly
- Requires budget flexibility
Open vs closed mortgage
A closed mortgage is the standard. It restricts how much extra you can repay each year (typically 10–20% of the original principal annually). Paying off the whole thing early triggers a penalty — either three months' interest (variable) or the interest rate differential (fixed), whichever is higher. Most people never trigger these penalties because they keep their mortgage for the full term.
An open mortgage lets you pay any amount at any time without penalty. The tradeoff is a meaningfully higher interest rate. Open mortgages make sense for specific situations: if you're expecting a large sum (an inheritance, a property sale) that you want to put toward the mortgage, or if you're planning to sell the property in the short term. For most first-time buyers, a closed mortgage is the right choice.
Amortization period
The amortization period is how long it takes to fully repay your mortgage. The most common is 25 years. Since December 15, 2024, first-time buyers (and new build buyers) can choose a 30-year amortization with an insured mortgage. Extending from 25 to 30 years reduces your monthly payment — useful if affordability is tight — but you pay significantly more interest over time. A 30-year amortization on a $600,000 mortgage at 5% costs roughly $60,000–$80,000 more in interest than a 25-year amortization. The shorter the amortization you can handle comfortably, the better.
Mortgage term
The term is how long your current rate agreement lasts — separate from the amortization. A 5-year fixed term means you're locked into that rate for five years, then you renew at whatever rates are available at that time. Most Canadians choose 5-year terms for the predictability. At renewal, you can renegotiate, switch lenders, or pay down a lump sum without penalty. Your mortgage broker can shop renewal options for you — you're not obligated to stay with your current lender.
CMHC mortgage insurance
If your down payment is less than 20% and the purchase price is under $1.5 million, your mortgage must be insured through CMHC mortgage loan insurance (Canada Mortgage and Housing Corporation) or a private insurer. The insurance protects the lender, not you — but it's what makes low-down-payment mortgages possible. The premium is a percentage of your mortgage amount, added to your mortgage balance. Ontario also charges 8% PST on the CMHC premium, payable in cash at closing.
| Down payment | Loan-to-value (LTV) | CMHC premium rate |
|---|---|---|
| 5% (minimum) | 95% | 4.00% |
| 10% | 90% | 3.10% |
| 15% | 85% | 2.80% |
| 20%+ | 80% or less | No insurance required |
Example: On a $600,000 mortgage at 95% LTV (5% down on a $630,000 home), the CMHC premium is 4.00% = $24,000. That $24,000 gets added to your mortgage, making it $624,000. You'll also owe $1,920 in Ontario PST on the premium at closing.
Mortgage broker vs going direct to your bank
A mortgage broker is an independent professional who shops your application across multiple lenders — banks, credit unions, and monoline lenders — and finds you the best rate and terms. Brokers are paid by the lender when your mortgage closes, so there's typically no direct cost to you. Going directly to your bank means you're only seeing one lender's products. Your bank may offer loyalty rates for existing customers, but a broker's access to 20+ lenders usually results in a better deal.
Brokers are especially valuable for buyers with complex situations: self-employment income, variable or commission pay, recent immigration, or credit issues. They know which lenders are most flexible with specific situations. For most first-time buyers, visiting a mortgage broker before your own bank is simply the smarter first move.