Mortgage Types

Conventional:

Non-conventional:

Open:

Pay out the mortgage anytime, no penalty.  Usually associated with high interest rates. 

Closed:

No early payout of your mortgage without a penalty (usually equal to at least 3 months interest).

Closed-convertible:

Ability to convert from a variable to a fixed rate product. 

Fixed-rate:

The rate stays the same throughout the term i.e. 6 month, 1, 2 & 3 year (open, closed and closed-convertible) 4, 5, 7 & 10 year closed. 

Variable-rate:

The rate fluctuates with the lender's prime rate through out the term i.e.. 3, 4 and 5 year (open, closed, closed-convertible and capped). 

Split-term:

Combination of all possible terms (6 month through 10 years)

Self-directed RRSP:

A specialty mortgage rate — term optional — within CMHC guidelines. Invest your own RRSP funds into all or part of your home mortgage. 

Short-term:

If rates are low and stable, and/ or you are prepared to take a risk, you can generally pay a lower rate with a short-term mortgage. You simply roll over your term every 6 months, or float your rate against prime, with the option of locking in to a longer term at a later date.This is not for everyone, however, as sudden upward rate movements can have a significant impact on your payments.

Long-term:

Any term 3 years or longer is considered "long term" in today's economy.  Long-term rates are usually higher than short-term rates, but by locking in, you will avoid exposure to rate increases. You'll have the comfort of knowing exactly what your payments will be and budget accordingly.

Split-term:

A mortgage which allows you to minimize — or hedge — your interest rate risk by splitting your mortgage into 5 parts. For example: A $150,000 mortgage could be split into five $30,000 segments with terms of 6 months, 1, 2, 3 and 5 year terms negotiated at today's best rates. The average rate would rise or fall much more slowly than changes in the market, however, as only the shorter terms are affected by even the most volatile rate movements over the first few years.

Prepayment Options:

Many lenders now allow you to make annual lump sum payments — usually 10% to 20% of the original principal balance. In addition, many mortgage products now include a double-up and "skip-a-payment" feature. This lets you "bank" extra mortgage payments for a rainy day, at which time you can "skip" a payment if you need to.

Payment Changes:

Most mortgages now allow you to increase your payment on closed terms by up to 10% — 20% per year, once per year.

Payment Frequency:

Most mortgages now come with the option to pay your mortgage at a frequency that matches your cash flow — accelerated weekly(52 payments), accelerated bi-weekly(26 payments), semi-monthly (24 payments) or monthly(12 payments).  The added benefit of the "accelerated" weekly and bi-weekly payments is that you make at least 2 extra payments per year...these extra payments go directly against your principal.  The surprising effect of these extra payments is to reduce the amortization of the average mortgage by approximately 5 years.