In Quebec, there are five main types of mortgage. These are:
Open mortgages
An open mortgage is a type of mortgage that allows the borrower to repay the loan in full, or make extra payments, at any time without paying a prepayment penalty. This type of mortgage offers maximum flexibility for the borrower however, they normally come with higher rates of interest.
Best use case: An open mortgage is ideal for borrowers who expect to sell their property soon, receive a large bonus, or want the freedom to refinance or pay off the mortgage early.
Closed mortgages
A closed mortgage is a type of mortgage that limits how much you can prepay or pay off early without incurring a penalty. With a closed mortgage, the borrower may select a fixed or variable rate. These rates are normally lower than open mortgages.
Whilst closed mortgages do not allow you to repay the principal without any restriction, most lenders will allow borrowers with closed mortgages to make a lump sum payment of between 10 – 20% of the original mortgage amount once a year without penalty. This payment goes directly toward paying down the principal of the amount owing. Most lenders will also allow you to increase your regular monthly payments without penalty.
Best use case: Borrowers who plan to stay in the home for a long time and want predictable payments.
Convertible mortgages
A convertible mortgage is a type of mortgage that allows you to start off with one type of loan and then switch to another type of loan during the mortgage term without paying a penalty. You might start with a 5-year fixed-rate mortgage, and midway through the term, you could convert it to a variable-rate mortgage if interest rates drop, without paying a penalty. You could also convert from a closed mortgage to an open mortgage, depending on your lender’s rules.
Best for: Borrowers who want the option to lock in a fixed rate later while initially taking advantage of lower variable rates.
Hybrid mortgages
A hybrid mortgage combines two types of mortgages into a single loan registration. Typically, part of the mortgage has a fixed interest rate and part has a variable rate. For example, you might have 70% of your mortgage at a fixed rate and 30% at a variable rate. If variable rates fall, you may pay less interest on that portion, while the fixed portion keeps your payments predictable. Lenders offer many different hybrid structures, with varying splits, terms, and rate combinations.
Best for: A hybrid mortgage is best for experienced borrowers who will use this as one part of their financial portfolio.
Reverse mortgages
A reverse mortgage is a loan available to homeowners aged 55 and older that allows them to borrow against the equity in their home without making regular mortgage payments. Instead of paying the lender each month, the interest accumulates over time and the loan is typically repaid when the home is sold, the owner moves out, or passes away.
