If you are seeking a house in Ontario, you have a few mortgage options to help you get that dream home you’ve always wanted. Knowing what is available and how to navigate the mortgage landscape can help you save thousands while you pay off your property. Personal financial goals, risk tolerance, and future plans will play a role in choosing the best mortgage option.

Mortgage Options in Ontario

Conventional Fixed-Rate Mortgage

Many Ontarians choose a fixed-rate conventional mortgage, meaning your interest rate stays the same for the entire term. While a term can range from a few months to years, in Ontario, five years is common. A stable option, you know what your payments will be for the next few years and are protected from fluctuations in interest rates until it is time to renew. This is a wise option if you are buying during a time of low interest rates.

Variable Rate Mortgage

If you are buying during a time of higher rates that are expected to drop, you may want to choose a variable-rate mortgage. With this option, your interest rate fluctuates based on market conditions. It is generally lower than a fixed-rate mortgage when you first sign up, but the rate can change during the term. Your payments may remain the same if rates go up (with more going to interest and less to your principal), or they may increase depending on how much the rate fluctuates.

Open Mortgage vs. Closed Mortgage

An open mortgage is more flexible when it comes to making additional payments. You have the option to either repay the entire amount or make extra payments whenever you like without any penalties. This is a good option for anyone who plans to pay down their mortgage faster, although it generally comes with a higher interest rate than a closed mortgage.

A closed mortgage does not allow for additional payments without incurring a penalty. (If you want to pay it off faster, you’ll be charged a fee). However, it has a lower interest rate, making it a more attractive option for most Canadians.

High Ratio Mortgage

A high-ratio mortgage is a good option for homebuyers who don’t have a sizeable down payment. A down payment of at least 20% is typical in Canada. But if you can’t afford the full amount, a high-ratio mortgage allows you to secure a loan with a down payment as low as 5%. With this type of mortgage, you need to obtain mortgage default insurance through the Canada Mortgage and Housing Corporation (CMHC) or a private insurer (Sagen or Canada Guaranty).

Second Mortgage

You can also take out a second mortgage on your home if you require funds for things like home renovations or debt consolidation. You are tapping into the equity you have built in your property and borrowing against it. You will generally pay a higher interest rate on a second mortgage due to increased risk to lenders.

Home Equity Line of Credit (HELOC)

A home equity line of credit (HELOC) is like a second mortgage in that it allows you to borrow against the equity in your property. It functions more like a credit card, giving you the flexibility to withdraw funds as needed, up to a predetermined limit. Interest is charged only on the borrowed amount.

Portable Mortgage

A portable mortgage is convenient if you move to a different property before your term ends. You can transfer your existing mortgage to a new property without any prepayment penalties.

Mortgage Interest Rates & House Prices

A delicate balance between interest rates and home prices directly impacts housing affordability. When interest rates are low, borrowing costs are less, and mortgages are more affordable. This can increase demand, which leads to higher home prices.

When home prices rise rapidly because of strong demand, low interest rates may not provide much relief to homebuyers. Despite favourable buying costs, the overall cost of homeownership can become difficult for many families.  

When those rates rise, borrowing becomes more expensive, and house demand decreases. This helps to stabilize home prices. While you may have to pay a higher interest rate for the first term of your mortgage, the home price will be more affordable in the long run.

The challenge lies in finding the right balance for you. When it comes down to it, the perfect time to buy a home has more to do with your finances and goals.

Mortgage Glossary

The Amortization Period is the length of time it takes to pay off a mortgage (usually between 5-30 years in Canada).

The mortgage term is the time your mortgage contract is in effect. In Canada, the average duration is five years, but it can vary. At the end of your term, you will renew your mortgage based on current interest rates and market conditions.

Foreclosure is the legal action the lender takes if you default on your mortgage payments. The lender takes over your property under a legal process called a power of sale.

Home Buyers’ Amount (HBA) for first-time home buyers is a non-refundable tax credit for first-time home buyers.

Home equity is the value of your home minus the outstanding debt (such as mortgage and liens).

The maturity date is the day your mortgage term ends. You can either renew or pay it off if your lender agrees.

Mortgage pre-approval lets you know how much money you may borrow but doesn’t guarantee final approval.

Mortgage principal is the amount of money you borrow from a lender (not including interest payments).

There are many mortgage options for Ontario homebuyers to secure their dream home. The best options will depend on your personal finances, goals, and plans for the future. Working with a professional mortgage broker who has your best interests in mind is always recommended.

If you are ready to find your forever home in the West GTA, we are here to help!