Deciding Between Open and Closed Mortgages Based on Financial Goals

Choosing the right mortgage type largely depends on your financial strategy and objectives for repaying the loan. If you’re planning to make additional payments to settle the loan early, an open mortgage might be more suitable as it doesn’t impose prepayment penalties. However, this flexibility comes with a higher interest rate. Conversely, a closed mortgage offers lower interest rates but restricts your ability to make extra payments or pay off the loan early. Assessing your financial goals and weighing the pros and cons of each option is crucial. Consulting with a mortgage broker in Abbotsford and Chilliwack can also provide clarity on the available choices.

Abbotsford and Chilliwack Two-Year Fixed Mortgage: FAQs

Why Should I Compare Mortgage Rates in Abbotsford and Chilliwack?

Comparing mortgage rates is essential to secure the best deal. A mortgage broker in Abbotsford and Chilliwack can assist in evaluating interest rates and loan terms, not just for new purchases but also during mortgage renewals. Many homeowners stick with their existing lender at renewal, but exploring other options can lead to better terms. It’s a valuable opportunity to shop around for the most advantageous mortgage solutions.

Fixed Rate vs. Variable Rate Mortgages: What’s the Difference?

Fixed-rate mortgages offer the stability of set monthly payments, regardless of fluctuating interest rates. These loans typically have higher interest rates compared to variable-rate loans, as the lender assumes the risk of potential interest rate increases.

Variable-rate loans, tied to the Bank of Canada’s interest rate, generally start with lower interest rates. However, if the interest rates rise, so will your monthly payments. Switching from a variable to a fixed-rate mortgage may incur a three-month interest penalty. Short-term fixed-rate mortgages, like 1-year or 2-year options, can be a middle ground between long-term fixed and variable rates, especially if you anticipate a decrease in interest rates.

Open vs. Closed Mortgages: Which Should I Choose?

Whether to opt for an open or closed mortgage hinges on your likelihood of paying off the loan ahead of schedule. Closed mortgages limit or restrict additional payments towards the loan balance and may include prepayment penalties. Open mortgages, while offering the flexibility of penalty-free prepayments, typically come with higher interest rates. Consider various strategies for quicker loan repayment, like biweekly payments or choosing a shorter mortgage term, which compels faster loan balance reduction.

Understanding Rate Holds

A rate hold is essentially a lender’s commitment to a quoted interest rate for a specified period, typically ranging from 30 to 120 days. This rate is subject to change, so the rate hold ensures the quoted rate is honored during this window. Beyond this timeframe, the interest rate for your mortgage will be the prevailing rate at the time of agreement. Working with a mortgage broker in Abbotsford and Chilliwack can help you find lenders with the most favorable interest rates and longest rate holds.

Should I get an open or closed mortgage?

The answer to this depends on whether or not you’re really going to pay down the loan ahead of schedule. A closed mortgage limits how much money you can pay toward the loan balance as well as when. It may even prohibit it altogether unless you pay a prepayment penalty. An open mortgage doesn’t have this prepayment penalty. On the other hand, you’ll pay a higher interest rate whether or not you make those extra house payments.

Know that there are a variety of ways you could pay off the loan faster. For example, you might want to pay biweekly instead of twice a month. Or choose a shorter mortgage term. While a 15 year mortgage comes with a higher monthly payment than a 25 year mortgage, you’re forced to pay down the loan balance faster, too.

What is a rate hold?

Imagine that you walk into a mortgage lender in Abbotsford and Chilliwack and ask them how much you’d pay in interest on a home loan. They give you a price quote of 3% as of that day. That quote is based on today’s interest rate, which changes frequently.  The rate hold is simply how long they promise to agree to that quoted interest rate.  After that point, they’ll still extend a mortgage to you but the interest rate would be whatever the rate is that day. Lenders typically have a rate hold of 30 to 120 days. Consult with a Abbotsford and Chilliwack mortgage broker to find lenders with the lowest interest rate and longest rate holds.

Call your dedicated experienced Abbotsford and Chilliwack Mortgage Brokers today to get the lowest mortgage rate.