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Home News Exploring the Types of Properties Eligible for Preapproval Loans in Canada

Vesta Elevate Collection

Exploring the Types of Properties Eligible for Preapproval Loans in Canada

May 23, 2024

If you’re planning to buy a new home, you will need a preapproval. While they’re not mandatory, a preapproval is an assessment done by the lender to see what types of home loans you qualify for.

There are different types of residential properties such as single-family homes, multiplexes, condos, and townhouses. Most mortgage preapprovals are granted for single-family homes because they are considered one of the least risky purchases. Duplexes, townhouses, multiplexes, and condos are considered to be riskier purchases and therefore have different qualifying considerations. When applying for a preapproved mortgage, talk to your lender about what you want to purchase to ensure you are approved for a loan on that type of property.

When negotiating a property loan from a financial institute, there are different mortgage types to consider.

High-ratio mortgages – This type of home loan is available to buyers who put a down payment that is less than 20 percent of the home’s total price and borrow over 80 percent from the lender to purchase your home. Because the borrowing amount is so high, buyers are required to buy loan insurance, so the lender’s investment is protected. High-ratio mortgages are also known as insured mortgages.

Conventional Mortgage – A conventional mortgage is offered to buyers who put over 20 percent of the total property’s sale price down and borrow less than 80 percent from the financial institute. This type of mortgage doesn’t require loan insurance.

Open Mortgage – With an open mortgage, you have the option to make additional payments or pay the full loan amount of your mortgage without facing prepayment charges or penalties. Open mortgages also offer the option of converting your mortgage to any other term without prepayment charges. This type of mortgage usually has a higher interest rate than other mortgage options.

Closed Mortgage – A closed-term mortgage is a mortgage that is locked in for a certain period. During that time, the lender can’t renegotiate, refinance, or make additional payments without facing prepayment charges and penalties.

Closed mortgages usually have lower interest rates than an open mortgage. They are ideal for homebuyers who don’t plan to pay their mortgage off before the end of the term.

Convertible Mortgage – A convertible mortgage gives homebuyers the option to convert their mortgage to a longer, closed-term mortgage or change their mortgage to a different type of mortgage with varying terms anytime with paying a prepayment charge. It has all the same benefits of a closed mortgage including lower interest rates.

Hybrid Mortgage – A hybrid mortgage blends feature from fixed and adjustable types of home loans in one agreement. It can have either a fixed or variable rate option, a line of credit portion, or a blended combination of these and other options.

Reverse Mortgage – Reverse mortgages are designed for homeowners over 55 years. This type of mortgage allows older homeowners the option of converting their home’s equity into either a one-time lump sum payment or receiving monthly cash installments.

If the homeowner sells the home or passes away, the balance of any loan on the home is due to the financial institution once the house is sold.

Variable Rate Mortgage – With this type of mortgage, homeowners have more flexible terms than a fixed-rate mortgage. These mortgages are good for those who can afford to have their payments fluctuate and want the lowest rate they can get.

Fixed Rate Mortgage – A fixed-rate mortgage locks in the interest rate for the term. These are good for lenders who want or need a consistent monthly payment so they can manage their financial budget without surprising or fluctuating mortgage payments.

If you are planning to buy a home, refinance, or renew your mortgage, talk to your financial lender about the different mortgage types so you can explore which mortgage best suits your personal and financial needs.