Their are four main types of mortgages offered by lenders in Canada. They are referred to as closed, open, fixed and variable rate. Many lenders offer products that can be combined with the mortgage type, so ask questions when you meet with them!
Here is an overview on the above mentioned types of mortgages:
Within a closed mortgage, the payments remain unchanged for the duration of the load period (term). This format provides stability but penalizes a borrower who wants to terminate the mortgage early. Typically there are set terms for the loan, usually ranging from a term of 6 months up to even twenty years. The norm is to secure a term of five years as this provides a locked in rate for a good number of years but allows you to change your mortgage after five years.
This form of a mortgage allows the flexibility of pre-payment of the mortgage which is in contrast to the closed mortgage format.
Variable Rate Mortgage
In a variable rate mortgage, the interest rates can change during the term. The advantage of this format is that the borrow may take advantage of lower interest rates than in a fixed rate mortgage. On the downside, this mortgage exposes the borrower to change, which could mean the interest rate could go up or down thus affecting the monthly payments.
Fixed Rate Mortgage
Here you have a mortgage that has a constant interest rate throughout the term of the loan, even if the rates rise in the marketplace. On the flip side, if rates go down in the marketplace, the borrower is locked into the fixed rate until their term is up. The desireable element of this form of a mortgage relates to the stability of the payments for the borrower.
There are a number of variations of the type of mortgages available in the marketplace. To explore these more, I would encourage you to visit with a lender, be it a bank or a mortgage broker, to discuss what would be best suited to you & your lifestyle. If you need a recomendation on where to start, please give me a call or email me.
Upon pre-approval with a lender, let’s get started on finding you a new house or condo!