open vs closed mortgage

Open vs. Closed Mortgages

Open vs. Closed Mortgages: Which Option is Best For You?

Despite the abundance of information available online in regards to mortgages, there’s a lot of confusion around the different terms. We’re here to make it easier on you…

While fixed and variable mortgages refer to the way your interest rate is calculated and applied, open and closed mortgages refer to the flexibility you have in paying off your mortgage debt.

Our number one goal is to help you become mortgage free faster, and the choice between open and closed mortgages is an important factor for many to consider in this process. At the end of the day, we want to make sure you feel confident and comfortable in any financial decision you make.

So let’s break it down…

What’s an Open Mortgage?

An open mortgage can typically be paid off in full, at any time, without any penalty. It can be an appropriate choice for those who prioritize flexibility in their mortgage. Perhaps you’re planning to sell your home relatively soon, or you’re expecting to come into a large sum of money, which can be used to pay off your entire mortgage. If this is the case, an open mortgage may be the right fit for you.

What’s a Closed Mortgage?

With a closed mortgage, you are allowed to make limited, penalty-free lump-sum payments, and there is a penalty if your mortgage is repaid in full before the end of its term. Many Canadians prefer the simplicity of a basic closed mortgage with fixed interest payments. They’re relatively easy to understand and you don’t have to worry about any surprises.

Which Option is Best For You?

An open mortgage is tempting for borrowers who fear mortgage penalties, but this doesn’t mean it’s necessarily the best option. In fact, in many cases, a close variable-rate mortgage still ends up being a cheaper alternative. Not only are you getting a lower rate (with small payout penalties), you can still make lump-sum payments of at least 20% on your original mortgage balance every year with no penalty.

Here’s what it comes down to: using an open product (whether an open variable-rate mortgage or a line-of-credit loan) is most effective as very short-term financing, and if used for any other reason it can end up costing you a surprising amount of extra money.

Where Should You Go From Here?

The only way to know for sure what option is best for you is to take the next step and secure your mortgage application. By doing so, you’ll have access to our honest feedback, and you can count on us to cut through the jargon and provide expert advice.

We make the process really easy, too. Just follow the steps we’ve outlined at the link below and our team will get started right away on finding the best mortgage product for you.

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