|
|
Mortgage Information - Types of Mortgages
|
|
|
|
|
Common types of Canadian mortgages:
Open Mortgage (6 month to 1 year terms are most common)
Allows borrowers to repay all or part of the principle amount of their
mortgage at any time without penalty. You usually have to pay a higher
interest rate for this type of mortgage since it offers greater
prepayment flexibility. This flexibility makes open mortgages ideal for
homeowners who plan to sell in the near future or who want to wait for
rates to drop before locking into a longer-term mortgage.
Unfortunately, open mortgages expose homeowners to short-term interest
rate fluctuations since the interest rate is reset at the end of each
6-month or one-year term. If rates are on an upswing, your mortgage
payments will continue to climb. On the plus side, if the rates are
going down, your payments will drop at each renewal. With this type of
mortgage you are allowed to break the mortgage at any time and either
switch lenders or lock into any other type of mortgage without penalty.
Closed Mortgage (1 to 5 year terms are most common but can go as high as 10+ years)
These types of mortgages have structured repayment schedules with
specific amounts due on a weekly or monthly basis. They usually have
the lowest interest rate available but cannot be prepaid or discharged
before the end of the term without having to pay a significant penalty.
Ideal for purchasers who need to lock in their mortgage costs for
long-term cash-flow planning. While most closed mortgages have lower
interest rates and pre-payment privileges such as 10% anniversary
payments or monthly double-up payments, they do not have the complete
repayment flexibility found in open mortgages.
Variable Mortgage (6 month to 1 year terms are most common)
With this type of mortgage the interest rate is directly linked to the
money market rates and can fluctuate on a weekly or daily basis. While
this is usually the best rate available, long-term upward swings in
interest rates could be quite costly. On the plus side, long-term
downward interest rate swings could mean large savings as your mortgage
rate follows the market down. With fixed-rate mortgages, a
predetermined amount of each monthly payment goes to the interest and
the rest is applied to the principle. With a variable rate mortgage the
monthly payments are still fixed but, as the interest rate goes up,
more of the regular payment will be applied toward the interest. If the
interest rate goes down, more of the regular payment will be applied
toward the outstanding principal.
There are alternative mortgage products available that can combine
different features from the above types of mortgages. Financial
institutions may even be willing to customize one of their products in
order to meet your specific needs. Call your bank or mortgage
specialist for more detailed information.
|
Mortgage Information
|
|
|
Home
Our Listings 
