There are multiple types of mortgages, such as fixed-rate, variable-rate, open, and closed mortgages.
- Fixed-rate mortgage – The interest rate is fixed for the whole term of the loan. Your interest payments, therefore, remain unchanged if benchmark index interest rates rise.
- Variable-rate mortgage – The interest rate fluctuates based on changes in the prime rate. Your loan agreement typically quotes a variable mortgage rate that is plus or minus the prime rate. For example prime plus 0.9%. A risk of uncertainty exists with this type of mortgage because your monthly repayments will fluctuate dependent on the benchmark index interest rates.
- Open Mortgage – You can make pre-payments or pay off your mortgage sooner without incurring additional charges.
- Closed Mortgage – You are only permitted to pay off a certain amount of your mortgage balance each year, or you will be penalized.
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