Mortgage Types

here are many types of mortgage options out there. It is best for you to seek the expert opinion of a mortgage broker to guide you through what will work best for your situation.

Mortgage Categories

Fixed-rate:
6 month, 1, 2 & 3 year (open, closed and closed-convertible) 4, 5, 7 & 10 year closed

Variable-rate:
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 risk and variable

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. Because long-term rates are usually higher than short-term rates, you may not want to choose this option. On the other hand, by locking in you will avoid exposure to rate increases. You’ll have the comfort of knowing exactly what you payments will be and you’ll be able to manage your budget accordingly.

Split-term

A mortgage which allows you to minimize 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 allow you to make a lump sum payment — 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” them if you need to.

Payment Changes

Most mortgages now allow the amortization to be adjusted by increasing the payment on closed terms by 10% — 20% per year, once annually.

Payment Frequency

Most mortgages now come with the option to pay your mortgage at a frequency that matches your cash flow — weekly, bi-weekly or semi-monthly. The added benefit of the “accelerated” weekly and bi-weekly payments is that by dividing a regular monthly payment into two or four respectively, and deducting it at the new interval, an extra payment a year is made directly against principal. The surprising effect of this one extra payment a year is to reduce the amortization of the average mortgage by approximately 5 years, with cash savings at the end of the mortgage term.