Different Types of Mortgage Loans

Buying a home is a considerable investment in your future, but also one that requires a substantial amount of capital. For the most part, home buyers will need to secure financing from a bank or other lending institution which is why it is important to understand the different types of mortgage loans available. In fact, in Canada there are many different kinds of mortgages with distinct advantages and disadvantages so take some time to understand mortgage loans in Canada so you can choose the best one for you and your family.


The Basics
In general, mortgages are defined by how interest is applied to the loan as well as how that loan is repaid. With respect to interest, you may choose either a fixed or variable interest rate mortgage. Fixed rates feature an interest rate that will not change for the entire term. Alternatively, variable rate mortgages have interest rates that fluctuate according to the prime rate. Both types are available with different terms, usually from 6 months to 10 years. At the end of the term, you can repay the balance of your mortgage or negotiate a renewal of your mortgage terms.
In addition, mortgages will be either open or closed. Open mortgages allow borrowers to pay off any amount of their mortgage at any time, while closed mortgages require that borrowers make scheduled payment amounts at set times. With an open one, you are free to pay more, renegotiate, or refinance your mortgage before the end of the term, but with closed mortgages you may be required to pay compensation in order to pay more, renegotiate, or refinance.
Mortgage Examples
A standard fixed-rate mortgage provides borrowers with the security in knowing that their payments won't increase over the term they have chosen. Payments can be increased without impacting interest rates, and terms are generally available up to 10 years.
A six-month convertible mortgage is an example of a mortgage with a variable interest rate. You can typically get a lower interest rate, and you get the benefits of an open mortgage. This type features a 6 month term, so you should be prepared to renew your mortgage regularly.
One-year open mortgages are a great option for borrowers who want to pay extra when they have excess funds available. This type of mortgage also features a fixed interest rate for the full year term, but also provides flexibility for borrowers who want to switch to a closed term mortgage.
Different Bank, Different Mortgage
While the above mortgage examples are fairly standard, it's important to know that every bank will offer variations of fixed and variable rate mortgages on either open or closed terms. Ultimately, you should take some time to speak to various lenders to find an institution that can meet your needs.