There are terms can lead to potential penalties should a borrower break the term early. Closed mortgages are a type of home loan that has very specific rules that come attached to them. But they can also offer lower mortgage rates than other types of loans.
One thing is for certain: calling Super Brokers should be one of the first steps that you make. Our mortgage professionals can help you make sense of the various loan types out there and help you decide which mortgage makes the most sense for you.
Closed mortgages can certainly make sense for your needs, but it is first important to understand what a close mortgage is and what the benefits and risks are to this type of loan.
What is a Closed Mortgage?
Also known as a long-term mortgage, fixed mortgage, or closed-end mortgage, a closed mortgage is the kind of home loan where the borrower agrees to follow specific rules in regards to repayment. Believe it or not, not every type of loan will allow you to pay off the principle at your earliest convenience.
There are repayment options and they are limited. This makes it difficult for prepayment or to pay off the mortgage quickly. Closed mortgages also have penalties and fees that are typically associated with not following the repayment terms outlined.
What are the benefits to Closed Mortgages?
While there are definite downsides when it comes to repayment options, there are definite advantages to closed mortgages. Perhaps the greatest benefit of a closed mortgage is the lower interest rates involved. When compared to open mortgages, going with a closed mortgage offers a more affordable rate for borrowers.
This is also because the restrictions on this type of loan also make them a more stable investment for the lenders. Should the borrower plan on keeping the property for a long period of time and has no intentions of refinancing their mortgage in the immediate future, it can result in serious savings when compared to open mortgages.
Additionally, since many closed mortgages are also fixed-rate mortgages, there is additional money to be saved since you have the same rate locked in for the entirety of the loan, protecting you from rising interest rates.
Penalties Associated with Closed Mortgages
Deciding to sell or refinance your home before your closed mortgage has reached its term can lead to monetary penalties becoming due and payable. Closed mortgages can save you money when you plan to hold onto that home for an extended amount of time.
If you plan on refinancing your mortgage or moving any time in the near future, it may be better to pay the higher interest rates that come with an open mortgage. This is to take advantage of the flexibility that open mortgages offer.
The fee that you will typically have to pay in closed mortgages is either three months worth of interest or the Interest Rate differential, whichever of the two is more expensive. These fees can definitely add up to a lot of money spent, so it is important to make certain that a closed mortgage is what fits your needs best.
How can I get a Closed Mortgage?
If you think a closed mortgage is the right idea for your financial goals, contact Super Brokers today. Our mortgage professionals can help you decide whether a closed mortgage is the best type of loan to suit your needs.
It bears repeating that if you are planning to move or refinance in the near future, a closed mortgage may not be the best kind of loan to suit your needs. Another thing to keep in mind is that there must be a minimum down payment of 5 percent and a maximum amortization rate of 25 years.