A fixed-rate mortgage offers a stable interest rate that remains constant throughout the term of the mortgage. This type of mortgage provides predictability and peace of mind, as the rate will not change regardless of market conditions. However, if the mortgage is fully paid off before the term ends, penalties may apply. Fixed terms can range from six months to 25 years, with the five-year term being the most popular choice among Canadians.
A Home Equity Line of Credit (HELOC) is a secured line of credit against your property, differing from a standard Line of Credit (LOC), which is unsecured. With a HELOC, payments are typically interest-only, and the interest rate is based on the prime rate. This type of financing allows flexibility, as it can be paid off at any time without penalty and reused without needing to re-qualify.
An open mortgage provides greater flexibility compared to a closed mortgage, as it can be repaid in full at any time before the maturity date without penalties. However, open mortgages often come with higher interest rates compared to fixed-rate mortgages. The most common terms for open mortgages range from six months to one year.
A variable rate mortgage (VRM) is a mortgage with an interest rate that fluctuates, often in response to changes in the prime rate. The adjustments ensure the mortgage rate aligns with current market rates. Variable rate mortgages typically start with lower rates than fixed-rate mortgages, compensating borrowers for the potential risk of future rate increases due to market changes.