In Quebec, we talk about the mortgage as though there were only one: the loan you sign for when you buy a house. In reality, there’s a whole family of mortgage products, and each one answers a different question.
The first question is the loan itself. Are you buying? Borrowing against a home you already own? Paying for a build? Once that’s settled, the terms come next, and that’s where the real cost of your financing gets decided, along with how much freedom you’ll have once the papers are signed.
Here’s a breakdown of the main types of mortgage available in Quebec, and the terms worth negotiating before you sign. If you’d rather follow the whole process from pre-approval to signing, start with our practical guide to understanding a mortgage in Quebec.
Key takeaways
- The traditional mortgage is what you use to buy. The other mortgage types let you tap the value of a home you already own, or fund a build, a renovation or a move.
- The term is how long your contract runs. The amortization is how long you’ll spend paying the loan off. Mixing up the two is the single most common mistake.
- Switching to accelerated biweekly payments works out to one extra mortgage payment a year, and often shaves years off your repayment.
- Put down less than 20% and mortgage loan insurance becomes mandatory. In Quebec, the QST on the premium has to be paid in cash at the notary’s office.
- How your mortgage is registered won’t change your payment, but it can stop you from shopping around when it’s time to renew.
Which type of mortgage for which situation?
There isn’t one mortgage. There are several, each built for a particular financial situation, and the one that fits depends entirely on where you’re starting from. Are you buying a property? Borrowing against one you already own? Financing construction, renovations or a move?
Here are the main types available in Quebec, and what each one is for.
The traditional mortgage
This is the one most people picture: the loan that finances the purchase of a home, whether that’s a house or a condo. It’s by far the most common loan type in Quebec, and it works in two parts:
- You put up a down payment, and the lender covers the rest of the purchase price.
- You pay that back in regular payments over 25 or 30 years until the balance hits zero.
Be careful! Your home is the lender’s security for the entire time. Stop making payments and it can be sold to recover what you owe.
Mortgages that let you access your home equity
Buying isn’t the only reason to take out a mortgage. If you already own, your home can become a source of financing in its own right, and how much you can borrow depends on your equity: what the property is worth, minus what you still owe.
Say your home is worth $500,000 and you still owe $300,000. That leaves you with $200,000 in equity. The good news is that you don’t have to sell to access that money. Several loans let you borrow against it directly, and here are the main ones.
1. The home equity line of credit
A home equity line of credit works like a reserve of money secured by your home. Your lender sets a limit, up to 65% of the property’s value, and you draw on it whenever you need to.
That makes it a good fit for projects where the spending is spread out, like renovations done in stages, since you only pay interest on what you actually use. The flip side is the freedom itself. Repayment is so flexible that staying on top of it takes real discipline.
2. The home equity loan
A home equity loan works the other way around. It hands you a lump sum, up to 80% of your home’s value minus what you still owe, and you pay it back in fixed instalments. That makes it the better option when you know the amount you need up front: a big renovation invoice, a debt consolidation, or a bill that has to be settled in one shot.
Be careful! Unlike refinancing, a home equity loan sits on top of your existing mortgage rather than replacing it. You end up with two loans and two separate monthly payments.
3. The second mortgage
A second mortgage follows the same principle, with one difference: it comes from another lender. Your current loan stays put, and the new lender registers behind it. That’s what “second” refers to, the order of repayment. If the property were sold, your original lender would be paid out first.
Two situations usually lead here. Either your current lender won’t advance you any more money, or breaking your existing loan would cost too much in penalties. The lender you end up with is often an alternative or private one, and because it’s taking on more risk, it charges a higher interest rate.
4. The reverse mortgage
A reverse mortgage does exactly what the name suggests. Instead of paying the lender, you get paid by the lender. Reverse mortgages are built for homeowners 55 and up who want to turn part of their home’s value into cash without selling it.
Depending on your age, you can access up to 55% of the property’s value. If you still have a mortgage, it gets paid off first out of that amount and you keep the difference.
Then comes the unusual part. You make no payments at all for as long as you live in the home. And since nothing is being repaid, interest piles up and your balance grows year after year. The whole debt then needs to be settled all at once, when the home is sold or when you die.
Mortgages to build, renovate or move
Some projects don’t fit a traditional mortgage at all. Either the value meant to secure the loan doesn’t exist yet, or your money is locked up at the wrong moment. Three loan types were designed for those situations.
1. The purchase plus improvements mortgage
A purchase plus improvements mortgage rolls the purchase of the house and the renovations to come into a single loan. What sets it apart is the math behind it: the lender bases its decision on what the home will be worth once it’s renovated, not on what it’s worth the day you buy it.
That gives you access to more money than a traditional mortgage would, which is exactly what makes a fixer-upper possible for buyers who could not finance the work separately. The renovation money doesn’t always land at closing, though. Depending on the size of the work, it may come as a single advance or be released in stages, as the work gets done and inspected.
2. Self-build financing
Self-build financing is for people having a home built, or building it themselves. The property doesn’t exist yet when you apply, so the lender can’t hand over the full amount at once. Instead, the loan comes to you in instalments called progress draws, each one released after an inspection as the work moves forward.
While construction is under way, you normally pay interest only on the money you’ve received so far. Once the work is done, the loan converts into a traditional mortgage.
3. The bridge loan
Timing is the problem a bridge loan solves. It’s short-term financing that covers the gap between buying your new home and selling your current one, and it frees up a down payment that’s still tied up in the house you’re leaving.
You borrow what you need for your down payment, for anywhere from a few weeks to a few months. Over that timeline you usually only pay interest, and the principal is paid in a single payment once the sale goes through.
Other situations
Two more situations fall outside the usual residential picture.
- A commercial mortgage finances an income property or a business premises. The lender looks first at what the building brings in, or at the company’s financial health, rather than at personal income alone.
- Financing a land purchase follows its own rules. The down payment required is a lot steeper, since vacant land can’t be insured and is harder to resell.
Choosing your mortgage terms: all the options
With the loan type settled, the terms are what’s left to decide. They look like fine print. They aren’t. They set the real cost of your financing and how much room you’ll have to manoeuvre.
The interest rate: fixed, variable or mixed
The interest rate is the best-known term, and usually the first thing people compare from one lender to the next. Quebec lenders offer three formulas: the fixed rate, the variable rate and the mixed rate.
The fixed rate
A fixed rate mortgage locks your rate in at signing and holds it there until the end of the term. Your payment stays the same from start to finish, which makes budgeting straightforward.
The trade-off shows up in the number itself. Fixed rates usually start out higher than variable ones, because the lender is carrying the risk of an increase on your behalf, and that protection has a price.
The variable rate
A variable rate mortgage moves with your lender’s prime rate, which in turn moves with the Bank of Canada. It comes in two forms, and the difference between them is easy to miss.
- Variable rates with fixed payment: your payment doesn’t change, but what you pay within it does. When rates climb, more of it goes to interest and less to paying down your debt.
- Variable rates with adjustable payment: this is the adjustable rate mortgage, where the payment itself rises and falls with the rate. Your debt keeps shrinking on schedule, but your budget has to keep up.
The mixed rate
A mixed rate mortgage splits your loan in two: one part at a fixed rate and one part at a variable one. You limit the damage from a rate hike without giving up entirely on a lower rate.
It does take more managing, especially at renewal, since the two portions don’t necessarily mature at the same time.
The term: how long your current contract runs
Your mortgage term is the stretch of time your conditions are locked in. It runs anywhere from six months to ten years, and five years is the most common by far.
Which means picking a term is really picking the date of your next negotiation. When it ends, everything goes back on the table: the rate, the payment frequency, even the lender, since nothing says you have to stay where you are.
The amortization: how long you’ll spend paying it off
If the term is your current contract, the amortization is the whole journey. It’s the number of years it will take to pay the loan off in full, usually 15, 20, 25 or 30 years, with 25 and 30 by far the most common. It sets both the size of your payments and the total interest you’ll hand over.
Stretching it out lowers your payment and puts homeownership within closer reach. On the flip side, it raises the total interest you pay, sometimes by tens of thousands of dollars.
The payment frequency
You also get to choose how often you pay. Most borrowers simply take whatever frequency the lender proposes, without realizing how much of a difference it makes. Five options are commonly available:
- Monthly;
- Biweekly;
- Accelerated biweekly;
- Weekly;
- Accelerated weekly.
The accelerated options are the ones worth a second look. Choosing one means repaying the equivalent of an extra mortgage payment every year, and most people barely feel it in their budget. The payoff, though, is real: on a 25-year amortization, accelerated payments often cut several years off the repayment and thousands of dollars in interest.
Open or closed mortgage: how free you are to repay
Every mortgage is either closed or open. That single choice sets how free you are to pay early, or to walk away from the loan before your term matures. Here’s what separates the two.
The closed mortgage
Closed mortgages are by far the most common, because they come with the best rate. In exchange, your freedom comes with limits. You can pay down a slice of the principal each year at no charge, often 10% to 20%, but clearing the whole balance or switching lenders before the term is up triggers a penalty.
The open mortgage
An open mortgage lets you pay off the full balance whenever you like, with no penalty at all. That freedom costs you a noticeably higher interest rate, and it’s only offered on short terms. It really only makes sense in specific cases, if you know you’ll be selling within the year, for example.
Insured or uninsured: what your down payment decides
Your down payment decides whether your mortgage has to be insured. Under 20% of the purchase price, mortgage loan insurance is mandatory. At 20% or more, it isn’t.
The insurance protects the lender, not you. If you eventually can’t pay your loan, the insurer is the one that covers the lender’s losses. You’re still the one who pays the premium, though, and it gets added directly into your loan and repaid through your payments.
Be careful! The QST of 9,975% is applied to the premium and can’t be added to the loan. You have to pay it directly at the notary’s office when you sign the deed of sale.
Conventional or collateral: how the security gets registered
When you sign, your lender registers a charge against your property in the land register. The amount registered may match your loan. It may also go well beyond it.
- Conventional mortgages are registered for the exact amount of your loan.
- A collateral mortgage is registered for more. That lets the lender advance you additional money down the road without having to register again.
Be careful! You don’t always have a say in that decision. Every lender has its own policy, and some register every mortgage as a collateral charge.
Ask the question anyway, because the answer catches up with you at renewal. A conventional mortgage makes moving to another lender easy if that’s what you want. A collateral mortgage makes it a lot more complicated: you have to discharge the mortgage, register it again, and book another appointment at the notary’s office, at your expense.
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