Mortgage Basics- Types of Mortgages

Closed Mortgage

A ‘closed' mortgage is usually the best choice if you aren't planning to pay off your mortgage in the short term. You will usually be able to get a better interest rate by choosing a closed term over an open term. In the past a closed mortgage usually meant you could not pay it off early and there were very few prepayment options available. This is not the case today, where 99% of mortgages considered ‘closed' can be paid off at anytime on 3 months interest penalty or Interest Rate Differential. Most closed mortgages also have prepayment privileges which allow you to make extra payments on your mortgage, increase your mortgage payment and even double up payments. Options vary by lender and product.

Convertible Closed Mortgage

A Convertible Closed Mortgage is usually the same as a regular closed mortgage, just a shorter term like 1 or 3 years. But they allow you to convert to a longer term without penalty.

Open Mortgage

An open mortgage allows you to pay off some or all of the mortgage balance at any time without penalty. This can be an attractive option if you know you're expecting a large sum of money or have the ability to make extra payments whenever you like. The downside is that the interest rates tend to be higher on Open Mortgages because of the prepayment flexibility.

Note: Regardless of whether you choose an Open or Closed mortgage, just about all lenders charge a Discharge Fee when paying out your mortgage. This fee ranges from $200 to $400 depending on the lender.

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