Most people out for the 5 year closed mortgage, this kind of mortgage keeps you payments the same for 5 years, but is it right for everyone? How can you take advantage of pre-payment that the mortgage allows? It's hard to come up with a 15% pre-payment every year.

Here is what I recently discovered! Yep, my own mortgage broker didn't tell me this was an option, when I bought my own house!

Here's the math with hypothetical numbers

Traditional 5yr closed
$300000
10% down $30,000
$270,000 borrowed
5.5% yr closed 25 year amortization
CMHC premium = $5400
Property Taxes = $2400/yr
Total Financing =$275,400
Monthly payment P&I = $1681.02
Taxes =$200
Total Monthly Payment P,I&T = $1881.02

Now Choose a variable rate at 4% with the same numbers:

$300,000 house
10% down payment =$30,000
$270,000 borrowed
Variable rate at 4% with 25 year amortization
CMHC Premium $5400
Total Financing $275400
Monthly Payment P&I = $1448.66
Taxes = $200/month
Total Monthly Payment P,I&T = $1648.66

There's a difference of $232.36
Now the variable can go up and go down....and you like the fixed monthly payment....and you can afford the $1881.02/mth

Well If you choose the variable, but LOCK in the higher payment of $1800 then you are paying 10% approximately, pre-payment each month on your principle which pays off the mortgage a lot faster! And if the 4% becomes 5% in the next 5 years it is still cheaper than the 5.5% fixed rate! and you are paying less ($80) per month!

Ask your mortgage professional about this payment strategy! Not many will mention it if you don't ask them!