Factors to Consider when Choosing Between a Closed, Open and Convertible Mortgage (2024)

FAQs

Factors to Consider when Choosing Between a Closed, Open and Convertible Mortgage? ›

The Bottom Line

A convertible mortgage gives you the same benefits as a closed mortgage, but can be converted to a longer, closed term at any time without prepayment charges.

The interest rate on an open mortgage is often higher than the interest rate on a closed mortgage. An open mortgage provides flexibility until you are ready to lock into a closed term. A closed mortgage limits your prepayment options but usually offers a lower interest rate than an open mortgage.

With an open-end mortgage, you'll first finance your home purchase, then borrow more over time, at your discretion, to renovate the property. In essence, you're increasing your loan principal. This differs from a closed mortgage, which provides a set amount of funds and doesn't allow you to borrow more.

The main difference between open-end credit and closed-end credit is this: Closed-end credit is taken out once, and has a specific repayment date; open-end credit, like credit cards, can be drawn from again and again, and there's no fixed due date for paying the balance in full.

Fundamental difference: Open loans don't have any prepayment penalties while closed-end loans do. In other words, if you try to make a payment other than the exact monthly payment, you'll be charged a fee if you have a closed-end loan but not if you have an open loan.

An open-end mortgage is a type of mortgage that allows the borrower to increase the amount of the mortgage principal outstanding at a later time. Open-end mortgages permit the borrower to go back to the lender and borrow more money. There is usually a set dollar limit on the additional amount that can be borrowed.

Make a lump sum payment.

At TD, with a closed mortgage, you can pay up to 15% of your original amount borrowed per year without paying a prepayment charge. For example, if your original mortgage principal amount was $400,000, then you can make a lump sum payment of up to $60,000 every year.

The cost to break your mortgage contract depends on whether you have an open or closed mortgage. An open mortgage allows you to break the contract without paying a prepayment penalty. If you break your closed mortgage contract, you normally pay a prepayment penalty. This fee can cost thousands of dollars.

What are the 4 factors of mortgage? ›

There are four components to a mortgage payment. Principal, interest, taxes and insurance.

A: Dave Ramsey recommends a 15-year, fixed-rate conventional loan.

A convertible mortgage is an agreement made at the beginning of a term that allows homeowners to change the type of mortgage they hold during its term. If a homeowner wants to start with an open mortgage and then lock into a closed mortgage, a convertible mortgage is the right choice.

Unlike a HELOC, which allows you to draw out money as you need it, a second mortgage pays you one lump sum. You then will make fixed-rate payments on that sum each month until it's paid off.

Students can measure strains with the cylinder in two 'end conditions': Open end: the cylinder has no axial load, so there is no direct axial stress. Closed end: the cylinder has axial loads, so there is direct axial stress.

A convertible mortgage is an agreement made at the beginning of a term that allows homeowners to change the type of mortgage they hold during its term. If a homeowner wants to start with an open mortgage and then lock into a closed mortgage, a convertible mortgage is the right choice.

This mortgage interest rate fluctuates with the prime rate while payments remain the same. If prime goes down, more of your monthly payment is applied to the principle balance of the mortgage. If prime increases, more goes to the interest.

6 Month Convertible Mortgage

When it comes time to renew, and we offer you a renewal, you can keep selecting a 6 month term until you're ready to secure a longer-term interest rate. When you feel interest rates are favourable, you can choose to convert to a longer term any time you want.