There are a few different types of mortgages that have their own benefits. Which type is best for you?
A closed mortgage is a type of mortgage that has the rate locked in for a certain term. The mortgage rate will not change during the term, but if the mortgage is paid out in full before the term ends, penalties may apply. Closed mortgage terms can range from 6 months to 25 years. One of the most common types of mortgage term Canadians prefer is 5 years.
A HELOC stands for Home Equity Line of Credit or Line of Credit (LOC). The difference between a heloc and a loc is a heloc is secured against a property and a loc is unsecured. The repayment on a heloc is usually interest only and the rate is usually based around the prime rate. A heloc can be paid out at any time without penalty and can be used again at any time without re-qualifying.
An open mortgage is like a closed mortgage but can be repaid at any time before the maturity date without penalty. The interest rates on open mortgages are usually higher than fixed rates. The most common open mortgage term is 6 months – 1 year.
Variable Rate Mortgage (VRM)
A mortgage with an interest rate that may change, usually in response to changes in the prime rate. The purpose of the interest rate adjustment is primarily to bring the interest rate on the mortgage in line with market rates. VRM’s usually start with better rates than fixed rate mortgages, in order to compensate the borrower for the additional risk that future interest rate fluctuations will create.