Mortgage Types

OPEN MORTGAGES

Open Mortgage is a term used to describe a mortgage that is “open” to be paid off at any time without any notice or penalty.  It therefore provides more flexibility when it comes to paying down your mortgage sooner.  An open mortgage allows you to make large payments on your mortgage or even pay off the entire mortgage without penalty, at any time.  Often the interest rates are fluctuation (variable rate) or higher than the standard closed rate, therefore often people will request an open mortgage if they believe they are likely to pay off the mortgage or change the lender quite soon and want to avoid any pay-out or pre-payment penalty

Most regular mortgages will allow homeowners to make lump sum payments of up to 20% of the entire mortgage once a year without penalty.  That payment goes directly towards paying down the principal of the amount borrowed. You may therefore not need an open mortgage, with higher interest rates, to make additional payments.

CLOSED MORTGAGES

Closed Mortgage is a term used to describe a mortgage that cannot be paid off prior to the maturity, unless a penalty is pad.  There is usually a commitment made for a set timeframe (1 to 5 years), with a pre-determined interest rate.

Consumers find comfort in knowing their exact mortgage payments, and that they won’t be affected by changes in the market place until the end of their term.  Therefore they can predict their mortgage balance owing at the end of the term.

Closed mortgages generally have lower interest rates than open mortgages. Most closed mortgages will allow the homeowner to make a payment up to 20% of the entire mortgage once a year without penalty. This payment goes directly toward paying down the principal of the amount owing.

CONVERTIBLE MORTGAGES

A convertible mortgage is usually a mortgage that starts off as “open,” but gives you the opportunity to change over to a closed term and fixed rate at any point, without penalty.  It offers lower rates than an open mortgage, and has the option of switching to a closed term, in case you feel at a later date that you would prefer a fixed rate.

REVERSE MORTGAGES

This type of mortgage allows older consumers to convert their home equity into monthly cash payment(s), generally for living expenses. A homeowner’s equity is gradually drawn down by a series of monthly payments from the lender to the homeowner - the borrower. At the end of the loan period, or upon the death of the borrower, the loan balance is due, which is usually settled by the heirs who sell the property to meet the outstanding
obligation.
 

 

 

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