Closed Mortgage product information

A Closed mortgage product is usually the safest option.

You can choose a term between 6 months and 10 years. The rate will vary with the term that you choose. Most clients opt for a three or five year term, as these give you a pretty good rate, without locking it in for too long.

Three and five year rates are usually the most competitive because it also holds little risk for the banks.

For a 7 or 10 year term you will pay a little higher interest rate, because the bank must make sure that in case interest rates rise a lot, they will not loose too much on your mortgage.

Here is a short example of what can happen.

You lock in your mortgage rate for 10 years at 6.5%. Bank rate at this time is 4.5%. Three years into your mortgage, you still have a rate of 6.5% but in the meanwhile bank rate increased to 7%. Now the bank loose .5% every day on your mortgage. This is what they have to compensate for with the longer closed mortgage terms.

With a closed mortgage term, you also do not have the option to pay it out sooner without a payout penalty.

Some financial institutions would not even let you out of a fixed term sooner with a penalty, they will only let you out in the event that you sell the house, so make sure that your broker find out about that restriction before you sign the commitment.

Pros of a Closed mortgage Product:

You have complete control over your rate and payment for the term of the mortgage.
Your mortgage payment will stay the same over the term.
It is portable
It is assumable
You can usually terminate with a payout penalty.

Cons of a Closed mortgage Product:

If rates go down, you will not get the benefit unless you refinance, in which case you might face payout penalties.
Payout penalties on early termination of the term.

Maybe a closed mortgage is a little too rigid for your situation, please learn more about other mortgage products, before making your final decision.

If you want to learn more about mortgages in general, we have lots of helpful information and resources to help you in making a decision that will work for you and your family.

We are also working an a handy little pocketbook called "The complete Homebuyers Workbook," so please visit often and be one of the first to get your hands on these handy little helpers.

Closed Mortgage or Variable Rate Mortgage?