An Overview of the Different Types of Mortgages Available to Abbotsford and Chilliwack Residents


For those new to home buying, mortgage terms can often seem bewildering. One common query is the difference between an open and a closed mortgage. An open mortgage offers greater flexibility, allowing you to pay off your loan at any time without a penalty, which is a contrast to the more restrictive closed mortgage, where paying off the loan early can result in penalties. This flexibility often makes open mortgages more appealing, despite potentially higher interest rates.

The concept of adjustable-rate mortgages (ARMs) became widely understood due to the risks they posed during the housing crisis, where numerous homeowners faced difficulties with increased interest payments. This situation led to the establishment of the Canadian mortgage stress test. The initial allure of ARMs often lies in their lower starting interest rates compared to fixed-rate mortgages, making them an attractive option initially, despite the potential for rate increases over time.

Residents of Abbotsford and Chilliwack have various mortgage options to consider, each with its own set of benefits and risks. Understanding these differences is crucial in making an informed decision that aligns with your financial situation and long-term housing goals.




Open Mortgages


An open mortgage allows you to pay toward the principle at any time and in any amount. The lender extended a mortgage based on an expectation of earning a profit. Your ability to prepay the loan increases the odds they won’t see the expected interest income from the loan. The lender may offset that risk by charging higher fees, a higher interest rate, or both.


Closed Mortgages


A closed mortgage has obvious benefits for your Abbotsford and Chilliwack mortgage provider. They know what their profit margin will be, because you have to pay the same interest rate for the life of the loan. A closed mortgage tends to come with a lower interest rate and fees than an open mortgage. Consult with a Abbotsford and Chilliwack mortgage broker to find the best overall loan terms.


Fixed Rate Mortgages


A fixed-rate mortgage ensures that the interest rate remains constant throughout the duration of the loan, unless you choose to refinance. This type of mortgage offers homeowners the benefit of predictable and stable monthly payments. The lender assumes a certain level of risk with a fixed-rate mortgage, as they stand to potentially lose out if market interest rates rise above the rate agreed upon in your mortgage. Due to this risk factor, the interest rates on fixed-rate mortgages are typically set slightly higher than those on variable-rate loans. This slight increase compensates the lender for the risk of locking in a rate for an extended period.


Adjustable Rate Mortgages

An adjustable-rate mortgage (ARM) is characterized by an interest rate that fluctuates in tandem with the federal interest rate. This type of mortgage can be advantageous compared to fixed-rate mortgages when interest rates are low. However, it also carries the risk of becoming unaffordable if interest rates rise significantly and you’re unable to refinance into a more manageable fixed-rate loan. Delaying the decision to refinance can lead to a situation where the available fixed rates are higher than what you might have secured earlier or if you had initially opted for a fixed-rate mortgage.

In Canada, the process to transition from an adjustable-rate mortgage to a fixed-rate one is typically straightforward, though it may involve certain fees. You have the flexibility to switch from an adjustable to a fixed-rate mortgage at any time through refinancing, and this change can also be made during the renewal period of your Abbotsford and Chilliwack mortgage.

For personalized advice and to explore the options that best suit your needs for your Abbotsford and Chilliwack mortgage, consider reaching out to Whalen Mortgages in Abbotsford and Chilliwack. As your trusted mortgage brokers, we are committed to guiding you through the process and helping you make the most informed decision.

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