Mortgage Options – Ottawa, Ontario
Closed Mortgages / Fixed Rate Mortgages
The expression ‘closed mortgage’ originates from the 1980’s when this type of mortgage was literally ‘closed’. You contracted to the lender to make your payments for the term chosen, you could not pay anything additional, nor could you pay off the entire amount for any reason except the sale of your property. These days, there are many ways to pay down your mortgage principal quicker, though the name ‘closed’ mortgage still remains. See pre-payment options for ways to pay off your mortgage quicker.
Fixed rate mortgages are the most popular type of mortgage. You benefit from the security of locking in your mortgage interest rate, for lengths of time ranging from 3 months up to 25 years. The rates are slightly lower than for an open mortgage for the same term.
An open mortgage allows you to pay off part or the entire mortgage at any time without penalties. Open mortgages usually have short terms of six months or one year. The interest rates are higher than those for closed mortgages with similar terms.
Variable Rate Mortgages / ARM (Adjustable Rate Mortgages)
At the start of a variable rate mortgage, the lender will calculate a mortgage payment that includes principal and interest for the term of the mortgage, which means your payments usually do not change. However, as the prime rate changes, so will your mortgage rate.
If interest rates are dropping, less of each payment will go toward interest and more will go toward principal. If interest rates rise, more of your payment will be interest and less money will be reducing your principal.
Some of these mortgages are completely open (you can pay off all or part of your mortgage at any time without penalties). Others that offer a ‘prime minus’ interest rate (e.g. prime – 0.375%) may charge a penalty. The interest rate on most variable rate mortgages is compounded monthly.