Closed Mortgage
If you want consistency with respect to rates and the length of your mortgage agreement, a closed mortgage is best for you. Interest rates are typically lower and do not change during the term. However, a closed mortgage does not offer much flexibility in paying off your mortgage down sooner with the exception of a once-a-year lump sum payment of up to 20% of your entire mortgage, depending on the lender’s policy.
- Predictability and consistency with respect to the payment amount
- Often comes with lower interest rates
- Limited flexibility with paying down your mortgage faster
- Cannot change interest rate during the term of the mortgage
Convertable Mortgage
Want the best of both worlds? Then consider a convertible mortgage. Convertible mortgages are flexible yet offer minimal risk. Often with a lower interest rate than an open mortgage, convertible mortgages provide the opportunity to switch to a longer-term closed mortgage without penalty.
- Provides the opportunity to take advantage of lower interest rates and switch to a closed rate without penalty
- Offers lower interest rates than an open mortgage
Open Mortgage
If you are looking for flexibility with regards to paying off your mortgage, consider an open mortgage. No penalty is incurred if you decide to make lump-sum payments or pay off your mortgage before the term expires; however, this flexibility comes often with a higher interest rate – which can result in higher monthly payments.
- Maximum flexibility; no penalty for making lump-sum payments or paying off your entire mortgage before the term expires
- Higher interest rate
- Best for those looking to pay off their mortgage as soon as possible
