What is an open mortgage?
It’s a mortgage that can be prepaid, either partially or in full, during the term of the mortgage without incurring a prepayment charge. This can give you some flexibility until you’re ready to lock into a closed term mortgage. However, it’s important to note that the interest on an open rate mortgage is often higher than on a closed mortgage.
What is a closed mortgage?
It’s a mortgage that can only be prepaid, renegotiated or refinanced before the end of the term by paying a prepayment charge. However, most closed mortgages include some prepayment privileges. For instance, a motusbank closed mortgage lets you to prepay up to 20% of the principal amount each year. Also, a closed mortgage often has a lower interest rate than an open mortgage and offers the benefit of saving on interest costs and paying off your mortgage faster.
What is a fixed interest rate mortgage?
The interest on a fixed rate mortgage does not fluctuate during your mortgage term. Neither does your regular mortgage payment amount. Your regular payment amounts remain constant and you know exactly how much of your principal balance will be paid off during your mortgage term.
What is a variable interest rate mortgage?
The interest rate on a variable rate mortgage changes based on changes to the motusbank Prime Rate. However, your mortgage amount payment is fixed and doesn’t change.
When the motusbank Prime Rate decreases, the interest you pay will also decrease. A smaller portion of your regular mortgage payment will go toward paying interest, and a larger portion will go toward paying your principal.
When the motusbank Prime Rate Increases, so too will the amount of interest you pay. So a larger portion of your payment will go toward paying interest, while a smaller portion will go toward paying down your principal.
Why choose a short term mortgage?
This type of mortgage usually offers a lower interest rate than a long term mortgage. When current rates are high but you think they may drop, a short term mortgage lets you lock in for a shorter period. It can also be a good option if you plan to sell your home or pay off the mortgage early.
Why choose a long term mortgage?
This type of mortgage usually offers a higher interest rate than a short term mortgage. When current rates are relatively low, choosing a long term mortgage secures the interest rate for a longer period of time. This also makes budgeting easier.