Mortgage Basics
The four main types of mortgages offered by lenders in Canada are:
closed, open, fixed and variable rate. Many lenders also offer features to customize the mortgage to your specific needs, i.e. prepayment privileges, rate discounts, home warranty programs.

Closed – a closed mortgage does not allow any prepayment or early repayment except on the sale of the property, in which case penalties are required.

Open – an open mortgage allows the prepayment of all or part of the principle amount at any time with or without notice. Open mortgages usually have short terms of 6 to 12 months. Interest rates on open mortgages are higher than on closed mortgages with similar terms.

Fixed Rate – a fixed rate mortgage keeps the interest rate locked for a specific period of time. The interest rate is adjusted at the end of the term when the mortgage renews. Terms are now available from 6 months to 25 years. Lenders often offer different prepayment options allowing for quicker repayment, however, lenders do charge penalties on early payouts.

Variable Rate – a variable rate mortgage or adjustable rate mortgage allows the interest rate to fluctuate with the mortgage prime lending rate. Generally these loans are initially set up with payments based on the current interest rate. Clients have the option of having their payments adjusted with interest rate changes or fixed the amount of their payments.

Conventional – a conventional mortgage is a loan for no more than 80% of the purchase price or appraised value of the property, whichever is less.

High Ratio – a high ratio mortgage is one where the borrower is contributing less than 20% of the value of the property as the down payment. These mortgages must be insured against default through the Canada Mortgage and Housing Corporation (CMHC) or Genworth Financial Insurance (GE). The insurance premium is charged only once when the mortgage funds are advanced. The premium for purchases, which ranges from 1.00% to 3.30% depending on the length amortization, can be added to the mortgage amount. Insurance premium calculations are based on the percentage of the loan compared to the property value.

With recent changes in the mortgage marketplace, new innovations are constantly being made, i.e. low document requirements for self-employed individuals, 5% down payment and 30 year amortization period and up to 95% financing on purchasing a second home property. Contact our mortgage specialist, Gerry Bray at Brayco Financial, for details.