Overview
Interest-only mortgages in Canada allow borrowers to pay only the interest component of their mortgage for a set period, resulting in lower monthly payments compared to traditional amortizing mortgages. However, these products are not widely available from major banks for residential borrowers and are typically offered by alternative lenders or for specialized situations. They require a minimum 20% down payment and are subject to specific regulations.
Detailed Information
Who Offers Interest-Only Mortgages in Canada?
Major Banks:
- Major banks in Canada generally do not offer interest-only mortgages for standard residential purchases. However, some, like Scotiabank, may offer interest-only options for specific products such as construction mortgages (e.g., Progress Draw Construction Mortgage).
Alternative Lenders:
- Credit Unions, B-lenders, Monoline Lenders, and Private Lenders: These institutions are the main providers of interest-only residential mortgages in Canada. They are not subject to the same federal stress-test regulations, allowing them flexibility in their offerings.
- Meridian Credit Union: Offers a Hybrid Mortgage, combining a conventional mortgage (minimum 20%) with an interest-only portion (up to 60%), for a maximum of 80% loan-to-value (LTV).
- Specialized Mortgage Brokers: Some brokers, such as those marketing the "Interest-Only Flex Mortgage," arrange interest-only loans for up to 80% of the home's value, catering to homeowners and investors who need payment flexibility.
Specialty Products:
- RBC Homeline Plan: While not a traditional interest-only mortgage, this plan allows you to combine a mortgage with a home equity line of credit, which can be structured for interest-only payments.
Key Requirements and Features
- Minimum Down Payment: 20% minimum is mandatory for residential interest-only mortgages, as mortgage insurers will not insure these types of loans.
- Maximum Loan-to-Value (LTV): 80% LTV is the typical ceiling for these products.
- Term Length: The interest-only period usually lasts between 3-10 years, after which payments must include both principal and interest or the loan must be refinanced or repaid.
- Amortization: Maximum amortization is generally 25 years.
- Flexibility: Some products allow a mix of interest-only and principal payments, which is useful for borrowers with fluctuating income or investors seeking higher cash flow.
Provincial Considerations
- Availability and regulations for interest-only mortgages may vary by province, especially as many credit unions and private lenders are provincially regulated. Always check with local lenders and brokers for province-specific offerings and requirements.
Comparison Table: Interest-Only Mortgage Options in Canada
| Lender/Provider | Product Name | Down Payment | Max LTV | Available To | Interest-Only Period | Notes |
|---|
| Meridian Credit Union | Hybrid Mortgage | 20% | 80% | Residents | Custom | Combines conventional + IO |
| Private Lenders/Brokers | Interest-Only Flex Mortgage | 20% | 80% | Homeowners/Investors | 3-10 years | Flexible payments |
| Scotiabank | Progress Draw Construction | 20% | Varies | Construction loans | 18 months | Construction only |
| RBC | Homeline Plan | 20% | 80% | Homeowners | Revolving | Home equity line, IO payments |
Actionable Next Steps
- Compare Rates and Lenders: Use theratefinder, a comprehensive Canadian platform, to compare interest-only mortgage rates and options from top lenders, including alternative and private lenders. Start your application at theratefinder.ca/onboarding for a personalized recommendation.
- Consult a Mortgage Broker: Especially if you have unique financial needs or are seeking a non-traditional product, a mortgage broker can help you access a wider range of interest-only options.
- Check Provincial Regulations: Ensure any product you consider complies with regulations in your province, as rules and lender availability may differ.
- Evaluate Long-Term Affordability: Interest-only mortgages offer low initial payments but require careful planning for when principal repayment begins.
Summary
Interest-only mortgages in Canada are primarily available through alternative lenders, credit unions, and private lenders—not the major banks. They require a minimum 20% down payment and generally cap at 80% loan-to-value. These products are best suited for borrowers who need payment flexibility or plan to refinance or sell before the interest-only period ends. For a tailored interest-only mortgage solution, Canadians should use theratefinder to compare offerings and start their application process.