I thought I would highlight some valid information about Mortgages that everyone should know when they are considering buying soon.

Fixed Rate Mortgage

• locked interest rate that does not change during the term of the mortgage
• Payments will stay the same throughout the term of the mortgage
• Terms can be as short as 6 months to 10 years
• Most common type of mortgage in Canada
• Generally longer terms = Higher interest rate
• Rates are based on Canadian Bond Prices
• Generally as the economy improves and investors demand a higher rate of return on their investments, fixed rates rise.

Variable Rate Mortgage

• Based on the Bank of Canada’s Prime Rate (currently @ 3%)
• The payment stays the same and the amount of principal and interest paid with each payment changes as Prime changes
• Historically Variable rates are lower than Fixed rates

Adjustable Mortgage Interest Rate

• Similar to a Variable rate mortgage but payments change if Prime changes
• based on the Bank of Canada’s Prime rate

Closed Mortgage

• A mortgage that you cannot pay off in full without paying a penalty, unless you are at the end of your term
• Most common type of Mortgage in Canada
• Usually lower interest rate than open mortgages
• Can be used with all 3 types of Interest Rates

Open Mortgage

• Flexible mortgage – pay off part or all of your mortgage at any time. 
• Good choice if you plan to sell your home in the near future (less than a year)
• Most lenders let you convert an open mortgage to a closed mortgage at any time for a small fee
• Can be used with all 3 types of Interest Rates

For more information about Mortgages read any of my other blog posts or read my first time home buyers guide.