Types of Mortgages

There are quite a number of mortgages and mortgage options. This page will summarize the most common ones:

Residential Mortgage: a mortgage where the property to be secured is detached house, duplex, townhouse, or condo.

Commercial Mortgage: a mortgage where the property to be secured is to be used for commercial purposes and the income to repay the mortgage comes from this enterprise. Examples include an apartment block, an office tower, a commercial space like a car wash or a restaurant, etc. Commercial mortgages are more complex than residential mortgages and typically involve fees and other expenses.

Private Mortgage: a mortgage where the lender is a private entity (not a bank, credit union, or other registered lender) and therefore free to set its own lending guidelines. Private lenders typically do not confirm income but require a large down payment. Rates can be significantly higher than residential mortgages and there is usually a fee charged (2-3% of the mortgage amount is common).

Closed Mortgage: This is the most common type of residential mortgage. In most cases, a pre-payment penalty is applied if the mortgage is paid off early. However, most lenders allow an amount (often 15-20% of the principal) to be paid down without penalty annually.

Open Mortgage: Unlike the closed mortgage, the open mortgage can be paid off at any time without penalty. Lenders charge a higher rate for this privilege.

Fixed Rate Mortgage: a mortgage where the interest rate is fixed for the entire term. This offers predictable payments for the life of the term and protection against increasing rates.

Variable Rate Mortgage: a mortgage where the interest rate is pegged to the Prime Rate and therefore increases or decreases with the Prime Rate. For example, if the Prime Rate is 2.70%, the rate may be Prime-.30%, or 2.40%. If Prime increases to 3.00%, the mortgage rate would increase to 2.70% at the same time. Most lenders allow clients to switch to a fixed rate mortgage during the term if the client believes the Prime Rate may increase.