Canada's main mortgage types — fixed, variable, open, closed, convertible and hybrid — differ in how the rate is set, how much prepayment freedom you get, and what it costs to break the contract. This guide explains each structure, how it behaves over a term, and which borrowers each one tends to suit.
Canada's main mortgage structures — fixed, variable, open, closed, convertible and hybrid — differ in how the interest rate is set, how much prepayment flexibility you get, and what it costs to break the contract early. Choosing between them is a trade-off between payment certainty and flexibility, not a single right answer. The Financial Consumer Agency of Canada sets out the disclosure rules lenders must follow, including what has to appear in your mortgage contract.
Before comparing structures, separate four things that are often mixed together: the mortgage type (how the rate behaves), the term (how long the current contract lasts, commonly one to five years), the amortization (how long the full paydown is scheduled to take, often 25 years), and the down payment. Two offers can carry the same headline rate but behave completely differently once you try to prepay, sell or refinance.
How the pieces fit together
The table below summarizes how each structure behaves. Your own contract controls the details — prepayment privileges, penalties and conversion rights vary by lender, so read the mortgage documents rather than relying on a product label.
| Structure | How the rate behaves | Flexibility | Often suits |
|---|---|---|---|
| Fixed rate | Locked for the whole term | Prepayment usually capped; breaking the term can trigger a charge | Borrowers who want a predictable payment |
| Variable rate, fixed payment | Rate moves with the lender's prime rate; the payment stays the same | Stable cash flow, but the split between interest and principal shifts | Borrowers who want steady payments but a lower starting rate |
| Variable rate, adjustable payment | Rate moves and the payment moves with it | Direct exposure to rate changes in both directions | Borrowers who can absorb payment swings |
| Open | Fixed or variable | Prepay or pay off in full at any time, usually without a charge | Short holdings, bridge situations, an expected windfall |
| Closed | Fixed or variable | Prepayment limited to the privileges written into the contract | Borrowers who want the best available rate for the term |
| Convertible | Usually starts variable, can be converted to fixed | Convert within the same lender, normally without a charge | Borrowers who want to keep their options open |
| Hybrid (split) | Part fixed, part variable | Blends certainty with rate exposure | Borrowers who want a middle path |
Two rules shape which structures you can actually access. If your down payment is less than 20% of the purchase price, the mortgage must be insured, and Canada Mortgage and Housing Corporation is one of the providers; that insurance protects the lender, not you, and it adds to your borrowing cost. Federally regulated lenders also apply a mortgage stress test supervised by the Office of the Superintendent of Financial Institutions, which means you must qualify at a rate higher than your contract rate. That can reduce how much you can borrow, regardless of which structure you choose.
Fixed-rate mortgages
With a fixed-rate mortgage, the interest rate is set for the full term. Your payment stays the same, and so does the split between principal and interest, assuming you stick to the scheduled payment. That predictability is the main selling point: if rates rise sharply during your term, your payment does not change.
The trade-off runs the other way when rates fall. You are locked into the older rate until the term ends, and getting out early usually means paying a prepayment charge. Lenders calculate that charge differently — some use a formula based on a set number of months of interest, while others use an interest rate differential that compares your rate with current rates for the remaining term. The method is described in your mortgage contract, and on a large balance the gap between methods can be substantial, so it is worth checking before you commit.
Fixed rates also matter at renewal. A fixed term ends on a specific date, and you either renew, renegotiate or pay the balance off. Nothing rolls over automatically unless you agree to it.
Variable-rate mortgages
A variable-rate mortgage is priced against the lender's prime rate, which moves with the Bank of Canada's policy interest rate. When the policy rate changes, prime usually moves too, though not always in lockstep or by the same amount, and each lender sets its own prime.
Canadian lenders offer two flavours of variable mortgage. With an adjustable-payment variable mortgage, your payment changes as the rate changes. With a fixed-payment variable mortgage, the payment stays the same but the interest portion grows when rates rise, so less of each payment reduces the principal. If rates rise far enough, the payment may no longer cover the interest owed — this is where the "trigger rate" and "trigger point" language in contracts comes from, and a lender may ask you to increase your payment, make a lump-sum prepayment or convert to a fixed rate.
Because the rate floats, a variable mortgage starts with more uncertainty than a fixed one. Over long periods variable rates have often been cheaper, but that is history, not a promise, and nobody can predict where rates go next. If you want to see how a different payment or rate would affect your budget, run the numbers with a loan payment calculator before you sign anything.
Open versus closed mortgages
Open and closed describe how freely you can prepay, not how the rate is set. An open mortgage lets you pay off part or all of the balance at any time, usually with no prepayment charge. Lenders price that freedom in, so open mortgages typically carry a higher rate — sometimes noticeably higher.
A closed mortgage restricts prepayment to the privileges written into the contract. Many closed mortgages let you increase your regular payment or make a lump-sum prepayment up to a set percentage of the balance each year, but the exact percentage, the timing rules and any conditions are lender-specific. Go beyond the privilege and you trigger a prepayment charge.
Open mortgages are often used for short periods: a bridge while a previous home sells, a renovation that will be refinanced soon, or a situation where an inheritance or bonus is expected within months. Closed mortgages are the standard choice for borrowers who plan to keep the mortgage for the full term and want the better rate.
Convertible and hybrid mortgages
A convertible mortgage is a closed mortgage that lets you switch from a variable rate to a fixed rate at any time during the term without paying a prepayment charge. It pairs the lower starting rate of a variable mortgage with the option to lock in later. The conversion is normally to one of the same lender's offered fixed rates for a comparable term, not to a rate you negotiate somewhere else.
A hybrid, or split, mortgage divides the balance into portions with different structures — for example, a fixed portion and a variable portion, each with its own term. This gives partial protection if rates rise while keeping some exposure if rates fall. Some borrowers achieve something similar across two lenders using a second mortgage or a home equity line of credit, but those are separate legal charges with their own rates, terms and risks.
Common mistakes when choosing a mortgage structure
- Confusing the term with the amortization. The term is how long your current rate and conditions last; the amortization is how long the balance takes to pay off. A longer amortization lowers the payment but increases total interest over time.
- Ignoring the prepayment charge formula. If there is any chance you will sell, refinance or pay off early, find out how the lender calculates the charge before you sign, not after.
- Assuming "variable" always means the payment moves. Many Canadian variable mortgages keep the payment fixed and let the principal portion shrink instead.
- Choosing an open mortgage for years rather than months. Open mortgages make sense for short windows; paying the open-rate premium over several years is usually expensive.
- Forgetting that a co-signer or guarantor may be needed. If your income or credit history limits how much you can borrow, adding a co-signer can change what you qualify for — read what co-signing a mortgage involves before agreeing to anything.
- Assuming a weak credit history closes every door. It narrows your options, but alternatives exist — see our overview of bad-credit borrowing in Canada.
- Treating renewal as automatic. When the term ends, compare the renewal offer against what else is available rather than signing the first letter that arrives.
No single structure is best for everyone. Match the type to your tolerance for payment changes, how long you expect to keep the property, and how likely you are to prepay — then compare the full contract terms, not just the rate.