Troy Mitchell

Types of mortgages

Fixed-rate mortgages:

Their interest rates won’t change over the term of the mortgage. They are great for first time home buyers. However, if you want to pay the mortgage off early, there’s a penalty for breaking the mortgage contract.

Variable-rate mortgages:

The interest rate fluctuates as the prime rate goes up or down. If interest rates go up, your payment stays the same but more of it goes into paying the interest so your amortization period increases. Studies have shown this works in your favor over time –you will have your mortgage paid off faster with a variable than with a fixed-rate mortgage.

Open mortgages:

They offer holders the flexibility to make large payments or pay off the entire mortgage without penalty. Interest rates are usually higher for this privilege. Great if you know you have some cash coming your way.

Closed mortgages:

Rate of interest and length of term will not change over the term of the mortgage and they are generally less expensive than open mortgages. Most closed mortgages allow the holder to pay off up to 15% of the mortgage once a year without penalty.

Hybrid, convertible or combination mortgages:

These allow holders to change the type of mortgage during its term. In other words, you can have part of your mortgage in a variable and part in a fixed-rate mortgage to diversify the risk of your interest rate rising.

Conventional mortgages have down payments equal to 25% (some may now be as low as 20%) or more of the purchase price of the home. If you have less than 25% down, you will need mortgage insurance. One hundred percent financing is available but your credit must be clean and you must show you can cover the closing costs.