In response to a comment question, I decided to modify and re-post my long answer in case anyone else is interested in how mortgages work in Canada.
- When you get a mortgage here, you commit to an overall time frame ie. 15, 20, 25, 30, 35 yr amortization.
- Then you pick the type of mortgage, variable or fixed rate, open or closed.
- Finally you pick your term ie. 1-5yrs. That and your credit rating will determine your rate.
- You are committed for the duration of the term to whatever rules apply to your mortgage. Our banks don't like it when you pay too fast and too soon so they penalize. Open mortgages allows you to pay it off any time you want but the rate is quite high and the term short -- currently 6.55% for a max. 1 year term.
- When the term is up, then you renegotiate for the next block of time, choosing the type of mortgage product you wish and this continues until you reach the end of your amortization.
Thus, you are privy to whatever is happening to the world at the time of renewal. We are just "lucky" that the rates have dropped in our variable mortgage because the economy has tanked. This is the 4th and 5th house I've bought in my lifetime and the first time rates have fallen so dramatically.
Two years ago, we amortized for 12 years, taking a 5 year variable, closed mortgage. Eight months later, we did the same for the ski condo at a slightly higher rate. When both 5 year terms ends in 3 years or so, I don't want to renegotiate as I would likely have to at a much higher rate.
That's why we are doing what we are doing, within the confines of our mortgage rules. Luckily, we can get very close to our goal despite their rules. I have cash and a line of credit that charges prime + 1% I will use to pay out the rest of the mortgage if there is an amount left over in 3 years. I don't want an open mortgage unless my bank makes me offer that beats my line of credit.
Finally, in Canada we are not allowed to write off mortgage interest on our income tax so it is in our best interest to get rid of a mortgage ASAP.