Mortgage Types

Fixed vs Variable interest rate

A fixed interest rate means your interest rate will not change throughout the term of your mortgage loan, and neither will the amount of your principal and interest payments. If you’re a first-time home buyer and are happiest knowing exactly what to budget for, a fixed rate mortgage is a wise choice.

With a variable rate mortgage, the interest rate can fluctuate along with any changes in the lender’s Prime Rate. Your principal and interest payments will stay the same for the term, but if the lender’s Prime Rate goes down, more of your payment will go towards the principal. If the lender’s Prime Rate goes up, more will go towards interest.

If you are concerned with interest rates rising, fixed rate mortgages are more popular as you are protected from your rate going up over the term of the mortgage. Variable rate mortgages are more popular when interest rates are falling. If you do choose a variable rate mortgage and rates begin to rise, there is always the option to shift to a fixed rate mortgage at current rates, subject to certain conditions.

Open vs Closed Mortgages to prepayment

An open mortgage is best suited for those who plan to pay off or prepay their mortgage loan without worrying about prepayment charges. It allows you the freedom to put prepayments toward the mortgage loan anytime until it is completely paid off. An open mortgage may have a higher interest rate because of the added prepayment flexibility, and can be converted to any fixed rate term longer than your remaining term, at any time, without a prepayment charge.

A closed mortgage provides the option to prepay your mortgage loan each year up to, for example, 15% of the original principal amount. If you want to pay your mortgage loan off completely before your term ends, prepay more than 15%, or pay off your mortgage loan balance before the end of its term, prepayment charges may apply. A closed mortgage typically has a lower rate than an open mortgage for the same term.