How to choose the right type of mortgage for you

Navigating the labyrinth of mortgages can be stressful if you’re looking to buy a property. It would be easier if you knew what boxes to tick before choosing the type of mortgage best suited to your current and projected income.

Open or Close

Most of us pay for mortgages for almost 6 to 10 years, and the interest rate keeps increasing over time. However, closed mortgages offer the comfort of a fixed monthly payment at a lower interest rate. The downside of closed mortgages is that it is difficult for you to pay off the mortgage early or sell without incurring a hefty penalty.

On the other hand, open mortgages will offer you the flexibility to pay off your mortgage earlier or sell your home. So even though the interest rate on open mortgages is comparatively high, it is still worth it if you want the flexibility to pay off your mortgage early.

Amortization Period

The amortization period is the total time it takes to pay off a mortgage in full. A more extended amortization period means you pay a lower monthly payment. Remember that a more extended period means higher interest is levied upon you. People looking to reduce the size of mortgages can opt for a more significant down payment. Down payment is less than 20% of the purchase price; the longest amortization period would be 25 years.

However, this might not be possible for everyone. But don’t let that deter you from buying that dream home! Canadians can pay as low as 5% and kick start their loan payments. However, this could translate into purchasing mortgage insurance to protect the lender if you default.

Term of the Mortgage

The term of your mortgage could vary between 6 months to 10 years. The longer your pay-off period, the greater the chance of your interest rates increasing.

The two main types of mortgages.

  1. Fixed-rate mortgages – With fixed-rate mortgages, your interest payments remain unchanged over the mortgage term

Since the interest rate doesn’t change, you have more control and know when you will be done with your mortgage payments.

The terms and conditions of this mortgage are much easier to comprehend. This could make sense for those who tend to get easily baffled by numbers.

It’s much easier while budgeting as it helps you keep a fixed amount aside for your mortgage payments.

  1. Variable rate mortgages – With this type of mortgage, while your mortgage payment remains the same, the interest rate can go up and down with the prime interest rate.

The initial interest rate could be significantly lower compared to fixed mortgages, which could help you avail of a larger loan. Thus translating to ease of purchase.  If and when the prime rate falls, interest rates get low, and more of your payment goes to the principal. This helps shorten the amortization period.

You can always switch to a fixed-rate at any time.

  1. Hybrid rate mortgages – As the name suggests, this is a convenient middle ground between fixed and variable options. You can bifurcate a part of your mortgage to follow a fixed rate, while the other has variable speeds. This enables you to have a balanced position even in case of a falling mortgage rate and a safety net against a possible increase in your payments.


We know that deciding on a mortgage is a high-priority decision and everyone’s situation is very different. Contact the Mikhailitchenko team today and let our professionals help you navigate the mortgage maze.