MORTGAGE TYPES

• Open: You can repay the mortgage in part or in full without penalty at any time during the term of the mortgage.
• Closed: You can only prepay the mortgage in part or in whole during the term of the mortgage with a penalty.  The penalty is usually the greater of 3-month interest or the Interest Rate Differential.  Most mortgages offer prepayment benefits. 
• Closed/closed: You can only repay the mortgage in full prior to then end of the term, if and only if you are selling the property to a third party at arms length.  Otherwise, you are locked in for the term.  For some lenders, you cannot even refinance during the term.

Fixed Rate: Your mortgage has a fixed rate for the duration of the term. Terms may be from 6 months to 25 years.  The periodic payments are usually restricted to monthly, semi-monthly, bi-weekly or accelerated bi-weekly.  These payments are based on amortization of 10, 15, 20, 25, 30 or 35 years (some lenders offer 40-yr amortization for conventional, non-insured, mortgages).  At the end of the term, you may be able renew the mortgage at another fixed rate (or variable if offered) with the same lender.  Straight renewal is always just for the balance of the amortization period.  The mortgage can be open, closed or closed/closed.

Variable (Adjustable) Rate: Your mortgage will have a rate that will vary with chartered bank Prime (usually the same across the board). Some lenders will use their own prime rate.  You must be aware of this before you sign.  Depending on the lender, the rate may adjust when the Prime changes, or at the time of the next payment, or at the beginning of the following month.  It can also be open, closed or closed/closed.  For VRMs, the prepayment penalty is usually 3-month interest.

50/50: Half of the mortgage is on a fixed rate and the other half variable.  It is for people who cannot make up their mind.

HELOC: This stands for Home Equity Line of Credit.  It is a credit facility fully secured by a charge on your property.  In other words, it is a “readvanceable mortgage“.  The advantage of a HELOC over a normal mortgage is you can re-borrow up to the original approved amount after you have paid the principal down.  Pricing usually varies with bank Prime.  Repayment is interest only.  You can also set up a portion or all of the HELOC at the beginning as a normal mortgage.  As the principal of the mortgage is paid off, the amount available for re-borrowing will go up under the line of credit component.  Some HELOC products can be separated into many different components for whatever purpose (e.g. income tax deductible expense tracking).

No-Frill: For the sake of offering rock-bottom rates, some lenders offer no-frill products.  No-frill usually means the mortgage will not offer pre-payment benefits; the mortgage must be funded within 30 days of commitment; and the mortgage may be closed/closed.

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