What Is Open And Fully Closed Mortgage
Posted at by PConran on category FinanceCanadian financial institutions offer a variety of mortgage loans, from partially open mortgages to fully open mortgages with no penalty or predetermined penalty and fully closed mortgages. When choosing a mortgage type, it is important to consider whether a portion of the principal or the entire principal can be repaid before the term of the loan. This consideration is important as it reduces the cost of borrowing, by saving money in interest charges. The latter would have been paid over a longer period, which is shortened by repaying quicker.
A fully open mortgage with no penalty allows borrowers to pay back the principal or a portion of it at any time. No penalty is incurred for this. You can prepay a mortgage with a predetermined penalty but obviously, a prepayment penalty applies. It is specified at the time of taking out the mortgage loan. With a partially open mortgage, i.e. a mortgage that is not fully open, borrowers can repay a fixed percentage. It varies between ten and twenty percent and depends on your financial institution. Partially open mortgages are offered with a predetermined penalty or no penalty. Another mortgage type is the fully closed mortgage, offered by lenders with no pre-payment privileges.
Despite the limitations of closed mortgages, there are certain advantages. For instance, they are ideal for borrowers who do not plan to refinance the mortgage, prepay it, or sell the house. The initial interest rate on closed mortgages is lower than that of the fully open variety. Persons who do not intend to prepay may choose this mortgage type and save on interest charges.
Moreover, fully closed mortgages are often featured with a fixed interest rate. If the interest rates are low upon issuing the mortgage, this would be the rate paid over the mortgage term. This condition offers protection against increasing interest rates.
There are disadvantages to consider as well. If you expect to repay the mortgage or a portion of it before its term, a partially open mortgage, open mortgage, or credit line may be a better option. For instance, you may want to sell a vacation home or car, or you may get a gift or inheritance from a family member. If the funds you expect are sufficient to prepay a portion of your mortgage or the full amount, it makes sense to opt for an open mortgage. You will repay before the term, thus saving on interest. Other mortgage types include convertible mortgages, mutant or hybrid mortgages , mortgages for recreational and investment properties, and convertible mortgages. There are mortgages for persons with impaired credit as well. Persons who are considered high risk by borrowers (e.g. made late payments) may apply. This mortgage type allows such borrowers to consolidate debts and rebuild their credit history, saving on interest charges. Choosing between different convertible mortgages, mutant or hybrid mortgages; then visit convertible mortgages, mutant or hybrid mortgages to learn more.