If you want to make large payments on your mortgage or pay off the entire mortgage without penalty, then an open mortgage is for you. An open mortgage offers maximum flexibility. These homeowners are willing to accept some fluctuation in the interest rate for the flexibility of paying off part or the entire mortgage before the term is complete.
A closed mortgage is a commitment with a pre-determined interest rate, over a pre-determined period of time. A buyer who uses a closed mortgage will likely have to pay the lender a penalty if the loan is fully paid before the end of the closed term.
With a closed mortgage, the borrower may select a fixed rate or variable/adjustable rate depending upon their needs or preference. See “Rates” for more information on the types of rates.
Closed mortgages generally have lower interest rates than open mortgages. Most lenders will allow borrowers with closed mortgages to make a lump sum payment of up to 10, 15 or 20% of the original mortgage amount once a year without penalty. This payment goes directly toward paying down the principal of the amount owing. Many lenders will also allow a borrower to increase the mortgage payment by up to 10, 15 or 20% as well as allowing the lump sum payment.
A convertible mortgage is an agreement made at the beginning of a term that allows homeowners to change the type of mortgage they hold during its term. If a homeowner wants to start with an open mortgage and then lock into a closed mortgage, a convertible mortgage is the right choice. It offers lower rates than an open mortgage and has the option of switching to a closed term. A conversion to a fixed rate mortgage can also be done by most lenders when the borrower has originally selected a variable rate mortgage and now wishes to move to a fixed rate before the end of the term.
A hybrid mortgage is a term used when there is more than one type of mortgage contained in a single mortgage registration. The registration could include a fixed rate portion, a variable rate portion, a line of credit portion, or any combination of these. Each lender will have their own unique name for this type of mortgage allowing anywhere from 2 to 100 different products contained in the registration of the mortgage. This product is often suggested for the savvy borrower who will use this as part of their overall financial plan.
This type of mortgage allows homeowners 55 years and older to convert their home equity into either a lump sum payment or monthly cash payment(s), generally for living expenses. A homeowner’s equity is drawn down by the lender to the homeowner - the borrower. When the homeowner no longer wishes to occupy the property as their principal residence, or upon the death of the borrower, the loan balance is due. The balance of the loan is settled from the proceeds of the sale of the property either by the owner themselves or their heirs.