What types of mortgages are there?

Mortgages differ each other in terms of rate types and term types, so do commercial mortgages.

Based on rate type, there are fixed rate mortgages and variable rate mortgages. Fixed rate mortgages are characterized with a mortgage rate fixed in the entire term. On the contrary, a mortgage rate in variable rate mortgages might change when banks change their prime rate, which is pegged with the overnight rate at Bank of Canada.

Based on term type, there are closed term mortgages and open term mortgages. For an open term mortgage, mortgagor has the privilege to pay off all the mortgage balance any time in the entire term without any penalty. Otherwise, mortgagors of a closed term mortgage are subject to prepayment penalty in the above mentioned situation. Prepayment penalty could be expensive when rate differential applies.

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