Fixed-Term Mortgage
Fixed-term or fixed-rate mortgages are characterized by an interest rate and principal payment that remains unchanged for the duration of the mortgage term. A fixed-term mortgage can help with budgeting and protect you from upward fluctuations in interest rates.
Open Mortgage
An open mortgage allows you the option to repay the loan at any time without penalty. The availability options are reduced to shorter terms (six months or one year only) and the interest rate is as much as one percent higher than closed mortgages.
Open mortgages are typically favoured by owners planning to sell their home or those who expect to pay off the entire mortgage (e.g. through the sale of another property, an inheritance, etc.).
Closed Mortgage
Closed mortgages provide the security of fixed payments for terms between six months to 10 years. Interest rates on closed mortgages are significantly less than open mortgages and can deliver as much as 20% prepayment of the original principal (more than the majority of what people prepay on a yearly basis).
However, there is a penalty charge for paying off the mortgage before maturity (end of term). This penalty is usually three months interest or the interest rate differential.
Variable Rate Mortgage
The variable rate mortgage provides a lot of flexibility for homeowners and is usually chosen when interest rates are decreasing. The interest rate is calculated by adding a certain percentage to the prime lending rate and is subject to change monthly based on current interest rates.
During the first three months of the mortgage term, a sizable rebate on the rate is given as a welcoming offer. Variable mortgage rates usually remain consistent, but the ratio between principal and interest fluctuates. As interest rates decrease, more of your mortgage payment goes towards paying off the principal balance than interest, and vice versa.
If rates rise substantially, the initial payment may not cover both the interest and the principal. Any portion not paid is still owed, or you may be asked to increase your monthly payment.
Variable rate mortgages are fully adaptable at any time without penalties (for a three-year term or longer) and offer a 20% repayment privilege at any time throughout the year.
Equity Mortgage
Equity mortgages are evaluated based on the equity of the home (market value minus the mortgage amount). You can receive as much as 80% of the purchase price or value of the property.
These are generally offered to applicants that do not meet the normal income and/or credit qualifying mortgage guidelines (i.e. little or no income verification, self-employed, and/or less-than-perfect credit).
Multiple Term Mortgage
This type of mortgage provides both the convenience of the lower rates of a short-term mortgage and the security of a long-term mortgage. Your mortgage can be split in to as many as five parts, all having different terms, rates, and amortization periods—in one convenient monthly payment.
However, you should be aware of any market changes with this mortgage. This type of mortgage is not for everyone, as the amount of time and stress involved is quite high.
Six-Month Convertible Mortgage
When interest rates go down, or you suspect that they will in the near future, a six-month convertible mortgage gives you a temporary commitment at fixed payments, with the bonus ability that while within the term, the mortgage is fully adaptable to a longer-term from one year to 10 years.
When the six-month period is over the mortgage becomes fully open, and it can be renewed with the current lender or moved to another lender. This type of mortgage is offered at most financial institutions, but each lender’s terms are different.
All-Inclusive Mortgage (AIM)
The minimum AIM term is five years and this mortgage takes care of everything for you automatically. For purchases, it includes:
- Solicitor’s legal fees and standard disbursements to close the purchase and mortgage
- Title transfer
- Title insurance from LandCanada for clients
- CMHC application fee or appraisal fee
- 1% cash-back to cover land transfer tax
- Registration of deed and mortgage
For refinances, it includes:
- Legal fees and standard disbursements to prepare and close the mortgage
- Title Insurance from LandCanada
- CMHC application fee or appraisal fee
- 1% cash-back
- Registration of new first mortgage
- Registration of discharge of existing first and second mortgage
Secured Lines of Credit
A secured line of credit allows you to use the equity in your home at rates as low as the prime lending rate in order to purchase investments, renovate your home, buy a car, etc. Up to 75% of the purchase price or value of the home can be arranged.
It’s very easy to access the available credit, with many lenders also providing an issued credit and/or debit card. The money does not have to be drawn until you need it, and you can pay off your balance at any time or make monthly payments. As the balance is paid down, more credit becomes available (revolving credit).
As it is a secured product, the conventional legal and appraisal fees are applicable. Sometimes a lender will offer promotions that cover part or all of these costs. You should be cautioned that although these lines are very flexible and versatile it can be extremely tempting to use it for unnecessary purchases.