There are a variety of mortgages, and each one has its advantages
and disadvantages.
A fixed rate, closed mortgage - about 75% of mortgages
across Canada
are fixed rate, closed mortgages.
Typically someone locks in their rate and payment for 5 years. This lets consumers know what their payment
will be every month and how much will be left on the mortgage at the end of the
5 year term.
A variable, closed mortgage - this mortgage has a rate that
floats with a financial institution's prime lending rate and is often for a 5
year term. Usually the payment is set at
the current rate and then the actual interest rate goes up and down throughout
the mortgage. The advantages are that
this rate is usually lower than a fixed rate and that if the rate decreases
your payment is paying more towards the mortgage principal. However, the disadvantage is that if the rate
goes up you will pay more in interest and it is possible that very little of
the principal is paid down by the end of the term.
