For Canadians exploring different types of home financing, one distinction is especially important to understand. Not all homes qualify for a traditional mortgage. In some cases, especially with mobile homes, manufactured homes, park model homes and properties on leased land, lenders turn to a different type of financing known as a chattel loan.
Although the terms sound similar, a chattel loan and a mortgage are very different financial products. Understanding how each works will help you make informed decisions when purchasing a home, a mobile or manufactured home, or any structure located on land you do not own.
This guide explains the key differences, advantages and risks of chattel loans and mortgages in Canada. It is designed to help homeowners and buyers navigate their options with clarity and confidence.
What Is a Mortgage in Canada?
A mortgage is the most common type of home financing. Mortgages are used when the borrower is purchasing real property, which means both the home and the land beneath it. The mortgage is secured by the property itself, which reduces lender risk and often results in lower interest rates and longer repayment terms.
Key characteristics of a Canadian mortgage:
- Used for traditional homes, condos and properties attached to owned land
- Secured by real estate registered on title
- Offers longer amortization periods
- Often has lower interest rates
- Available from major banks, credit unions and mortgage lenders
- Subject to government regulations such as CMHC insurance rules
Mortgages are ideal for buyers purchasing standard residential properties where the land is included in the transaction.
What Is a Chattel Loan?
A chattel loan is a type of financing used when buying something that is considered personal, movable property rather than real estate. In the housing context, chattel loans are commonly used for mobile homes, manufactured homes, park model homes, modular homes or trailers that sit on leased land or are not permanently affixed to a foundation.
Examples of when chattel financing applies:
- Mobile homes located in a mobile home park
- Park model homes on leased lots
- Manufactured homes on rented pads
- Older mobile homes that do not meet mortgage lending standards
- Homes that can technically be moved from the property
In a chattel loan, the structure is the collateral, not the land. This creates a different risk profile for lenders, which affects interest rates and terms.
Key Differences Between Chattel Loans and Mortgages
1. Land Ownership
Mortgage: Requires ownership of the land.
Chattel loan: Used when the land is leased, rented or not part of the purchase.
2. Loan Security
Mortgage: Secured by real property that typically appreciates.
Chattel loan: Secured by a movable dwelling that may depreciate.
3. Interest Rates
Because chattel loans are considered riskier, interest rates are often higher than mortgage rates.
4. Term Length
Mortgages commonly offer long amortizations, often up to 25 or 30 years.
Chattel loans tend to have shorter repayment periods, sometimes as short as 5 to 15 years.
5. Availability
Mortgages are offered by most lenders.
Chattel loans are more specialized and may only be available through certain lenders or financial institutions familiar with mobile home financing.
6. Eligibility Requirements
Mortgages have detailed qualification rules, including stress testing and debt ratios.
Chattel loans may be more flexible in some areas but stricter in others, especially regarding property age, structural condition and park rules.
When a Chattel Loan Might Be the Only Option
There are situations where a traditional mortgage simply is not possible, even if the borrower has good credit and income.
Chattel loans may be required when:
- The home is on leased land, such as a trailer park or manufactured home community
- The home is not permanently affixed to a foundation
- The home is older or does not meet building code standards required by mortgage lenders
- The land and the structure are owned by different parties
- The property is considered personal property rather than real estate
In these cases, buyers must work with lenders who specialize in chattel financing.
Pros and Cons of Chattel Loans in Canada
Advantages of Chattel Loans
- Accessible for mobile homes, manufactured homes and park model homes
- Often a quicker approval process
- Can be an option when traditional mortgages are denied
- Allows buyers to live in desirable communities with leased land arrangements
Disadvantages of Chattel Loans
- Higher interest rates
- Shorter loan terms
- Potentially higher monthly payments
- Limited lender options
- Homes may depreciate faster than traditional properties
- Can be difficult to refinance or renew
These factors make careful planning essential before committing to a chattel loan.
Which Option Is Better for Canadian Borrowers?
For most Canadians, a traditional mortgage provides better stability, lower rates and long term financial benefits. Buyers purchasing conventional real estate should pursue a mortgage whenever possible.
However, for buyers interested in mobile home living, manufactured homes or park model homes, a chattel loan may be the only workable path. These homes can still provide affordable housing, but borrowers should understand the financial implications and long term risks before making a decision.
Speak With a Mortgage Professional Before Choosing
Choosing between a mortgage and a chattel loan is a significant financial decision. Because the rules, risks and lender options differ so greatly, it is wise to speak with a mortgage professional who understands the Canadian market, mobile home financing and the complexities of leased land properties.
If you want guidance or need help determining what type of loan you qualify for, you can reach out to The Local Broker anytime:
https://thelocalbroker.ca/contact/
Final Thoughts
Chattel loans and mortgages may sound similar, but they serve very different purposes in Canada. While mortgages remain the primary choice for purchasing real property, chattel loans fill an important role for buyers considering mobile homes, manufactured homes or park model homes. Understanding the differences will help you choose the right option for your financial goals.
