Mortgage Definitions

Fixed Rate Mortgages
A fixed rate mortgage carries a specific interest rate for the term of the mortgage - anywhere from 6 months through 5 years and now for as long as 25 years.

Variable Rate Mortgages
The interest rate charged varies with the Chartered Bank Prime rate. The payment amount is set by the borrower and can only be changed by the borrower. The maximum mortgage advance is 90% of the value of the home (as determined by the appraisal, or in the case of a new purchase, the appraisal and the purchase contract, whichever is the lesser). A surcharge of .25% is applied to the standard insurance premium for hi-ratio mortgages (less than 25% down payment).

Adjustable Rate Mortgages
The interest rate charged varies with the Chartered Bank Prime rate. The payment amount is set by the borrower but can be increased by the lender if the payment amount does not cover the current interest charge. The maximum mortgage advance is 95% of the value of the home (as determined by the appraisal, or in the case of a new purchase, the appraisal and the purchase contract, whichever is the lesser). No surcharge is applied to the standard insurance premium for hi-ratio mortgages (less than 25% down payment).

Capped Variable Rate Mortgage
The interest rate charged varies with the Chartered Bank Prime rate but the payment amount is calculated at the "Capped Rate". The interest rate charged on your mortgage will never exceed the "Capped Rate". The "Capped Rate" is established at the time the mortgage commitment is made. The interest rate charge is usually expressed as "Prime minus a percentage".
Monies representing the difference between the interest rate charged and the "Capped Rate" are applied directly to principal.
Depending on the lender, the maximum mortgage advance could be either 90% or 95% of the value of the home (as determined by the appraisal, or in the case of a new purchase, the appraisal and the purchase contract, whichever is the lesser). With some lenders a surcharge is applied to the standard insurance premium for hi-ratio mortgages (less than 25% down payment), however the lender usually pays the surcharge portion.
The lender policies dealing with the situation where interest rates have increased to the point where the "cap" is reached and then come back down, vary. Please discuss with your mortgage broker.

Open Mortgage
An open mortgage can be paid out in full at any time without penalty. The interest rate on an open mortgage is usually higher than the interest rate on a closed mortgage of an equivalent term.

Convertible Mortgage
A convertible mortgage is closed for the stated term -- usually 6 months, but can be converted to a longer term mortgage product with the same lender during the term, without penalty.

Closed Mortgage
A closed mortgage cannot be paid out during the term without incurring a penalty. The penalty may vary depending on whether the mortgage is very new, or nearing the end of its term. Penalties are typically expressed as two or three months penalty interest, as an interest differential, or as the greater of these two possibilities.