Mortgage Term Types
Mortgage Term Types: Closed, Open and Convertible Mortgages
There are many mortgage options to choose from when looking for the one that will finance your home purchase. Online mortgage calculators are a terrific place to start your research, but it is also important that you are comfortable with mortgage term types.
The three basic mortgage term types: closed, open and convertible.
For closed mortgages, rates and payments are established, or fixed, for a specific term length. For example, a five-year fixed-rate closed mortgage means that for five years your payments will not change. It also means your mortgage rate will not fluctuate. It will remain the same for the full length of the mortgage term.
An open mortgage allows you to repay toward the principal (original amount borrowed) of your mortgage at any time, without penalty.
Then there are convertible mortgages. Convertible mortgages are a short-term closed mortgage with the option to convert to a longer-term closed mortgage. You can make this switch at any time, without penalty.
Know More About Interest Rates
You can pay the interest on the loan in one of two ways: fixed or variable. Fixed rates do not change within a term. If the rate you committed to on a three-year fixed-rate mortgage was 4.25 percent, and the following year prime rises to 7 percent, your rate will go unchanged.
A variable-rate will oscillate dependent on the prime rate or benchmark rate of the current market. If you commit to a three-year variable rate term and the prime rate falls or rises, your variable rate will adjust accordingly.
The payment options for your mortgage come in a number of options: weekly, bi-weekly, semi-monthly or monthly. Some lenders also allow the option to make payments in an accelerated bi-weekly or accelerated weekly schedule.
Choosing the accelerated repayment option allows you to make one extra monthly payment per year. This means 13 monthly payments over 12, which will help you to pay down your mortgage faster.
In addition to selecting terms and rates, you will also be able to choose an amortization period. To put it in simpler terms, this is the time period in which you have to repay the loan. Amortization can last anywhere from 10 to 25 years in Canada.
A knowledgeable Canadian mortgage broker can help answer all of these questions for you. They can also help you to ascertain the amortization, mortgage term, mortgage rate, and re-payment option that will help you to see your mortgage paid down in less time. This means fewer funds attributed to interest payments.