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Open vs. Closed Mortgages

Open Mortgage

An open mortgage allows you to repay your mortgage amount at any time, without penalty. Generally, open mortgages are more flexible than closed mortgages in terms of payment.

Here are a few ways you can benefit from an open mortgage:

  • If you have a varied income, open mortgages are a great, flexible option. Open mortgages allow you to pay back your mortgage, in part or in full, at any time.
  • If you’re unhappy with your open mortgage, it’s easy to switch to another product, like a regular, fixed rate mortgage.
  • You can apply funds directly to your mortgage without paying a pre-payment penalty. Pre-payment penalties occur in closed mortgages if the mortgagor decides to pay off some of their mortgage prior to the end of its term.
  • Interest rates for open mortgages are generally higher than that of closed mortgages, but give you the benefit of being able to pay it back at any time.

Closed Mortgage

Closed mortgages are a popular option for their low interest rates. Unlike open mortgages, closed mortgages have more restrictions on how you can pay off your mortgage. They cannot be refinanced, repaid, or renegotiated.

Here are some ways you might benefit from a closed mortgage:

  • With a closed mortgage, your interest rates are significantly lower than they are with an open mortgage. You have the stability of knowing your interest rates will not increase over the duration of your mortgage term.
  • If you are planning for a long-term mortgage, closed mortgages are a smart, cost-effective option.
  • Depending on your terms, you may be able to pay off your mortgage in lump sums or with increasing monthly payments. If you sign up for a completely closed mortgage, the only way to opt out of the mortgage without penalty would be selling your home.

There are many factors to consider when deciding whether to go with an open or a closed mortgage. Before making a decision, it’s important to familiarize yourself with both options.

As with everything involved in buying a home, having a well informed and expert team on your side can simplify your journey and give you peace of mind.

For more information about closing costs, or to find the best mortgage for you, please contact Rose Blankenagel at Mortgage West – The Mortgage Centre.