What's the Best Mortgage Option For You?
Open/closed mortgages refer to the flexibility you have in paying off the mortgage debt, while fixed/variable mortgages refers to how the interest rate is calculated and applied. (That means you can have: a fixed closed mortgage, a variable closed mortgage, a fixed open mortgage, and a variable open mortgage.)
The key to variable and fixed rates is to understand how interest rates are calculated and how these impact each type of mortgage:
Fixed rates are based on movement in the bond market (the benchmark for a 30-year fixed rate mortgage is the yield of a 10-year bond). As bond prices rise, fixed rates will also rise and the spread between the two reflects the risk investors are willing to take when they move their money from a secure product, like bonds, to invest in mortgage securities. There are times when that spread becomes very wide or very thinâ??a reflection of world events, such as the subprime mortgage crisis of 2008/2009 and the recent catastrophic situation that has befallen Japan.