Types of Mortgage

There are many types of mortgage. And now, i will show you some of them

• A split or multi-rate mortgage:

It allows you to arrange part of your mortgage at one rate and term and another part at a different rate and term. The advantage is that you are getting at least one portion at a fixed rate, if you don’t qualify for the whole amount at that rate. It also means you can pay off the mortgage in chunks. In Canada, mortgage interest rates can be fixed, variable or protected (or capped) variable. A fixed rate does not change during the life of the mortgage.

• An open mortgage:

It is a mortgage you can repay in part or in full at any time without penalty. Generally, interest rates are higher with this type of mortgage, but it makes sense if you plan to sell your home soon. An open mortgage can also be good for a short period of time when interest rates are high, giving you the option to lock into a longer term when the rates fall, or if rates start rising even higher. To take advantage of an open mortgage you have to be able to make payments from time to time additional to your regular mortgage payments.

• A closed mortgage:

It usually offers the lowest interest rate available but is not flexible. A closed mortgage does not allow prepayments or lump sum payments, or allows them only upon payment of penalties. Some closed mortgages allow limited additional repayments of principal, for example, once a year. Make sure you understand exactly what is allowed and at what additional cost, and how much, if any, notice must be given for each such prepayment.

• The term of a mortgage:

It is the length of time for which certain factors, such as the interest rate you pay, are set when you negotiate a mortgage.

Terms usually last anywhere from six months to 25 years. At the end of the term, you either pay off your mortgage or renew it. If you renew, you can negotiate terms and conditions again.

Generally, the longer the term of the mortgage, the higher the interest rate. The term of a mortgage is not the amortization period

• A variable rate changes:

It is as the prevailing market rate changes. Usually, your monthly payment to the lender stays the same. But the amount that goes to the principal and the amount that goes to interest change as the interest rate changes.

The protected (or capped) variable rate sets a limit on how high your interest rate will rise. Lenders usually charge a premium for a capped variable rate.

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