Open End vs Closed End Mortgages
If you are searching for a mortgage option, Open End Mortgage Vs Closed End Mortgage;then you have to think whether you should opt for a fixed rate or interest only mortgage. The reason behind choosing either a fixed rate or interest only mortgage is to get a secure loan at a lower interest rate. So, it’s very important for you to know how these two mortgage options differ from each other.
Interest Only Mortgage
It is a mortgage where you will pay a certain amount of money to the bank or lender for a pre-determined period of time, for which you will get interest rates. The advantage of this type of mortgage is that you can choose any repayment period between three months to five years. After the selected period of time, you will be required to pay an additional amount as the principal. At the end of the contract, you will have to repay the outstanding amount.
Closed End Mortgage
It is a mortgage where you will pay the bank a certain amount of money for a pre-determined period of time, for which you will get interest rates.Open End Mortgage Vs Closed End Mortgage; The advantage of this type of mortgage is that you can select a repayment period of up to 30 years and you will not be paying any extra amount as the principle. As the term of this mortgage is getting extended, you will be able to get a lower interest rate.
Open End Mortgage
Open end mortgage has the same principle as closed end mortgage.Open End Mortgage Vs Closed End Mortgage; The only difference is that it has a fixed amount that you will be paying as the principal at the end of the specified period of time.
Open end mortgage VS closed end mortgage – How to choose the best
Choosing a mortgage is a very important decision, and it requires time and proper planning. It is vital to choose the right type of mortgage to secure your financial needs in future. This article is all about the difference between open end mortgage vs. closed end mortgage, and how to choose the best.
An open end mortgage is a fixed rate loan, and the amount borrowed is fixed for the term of the loan, and the interest is calculated monthly. Open End Mortgage Vs Closed End Mortgage;While a closed end mortgage is a variable rate loan, and the interest rate can change anytime.
Benefits of Open End Mortgages
It is usually considered the safer of the two, because the interest rate remains the same throughout the term of the loan.Open End Mortgage Vs Closed End Mortgage; If you are not able to pay the full amount of the loan by the end of the loan term, the lender is only obligated to pay the outstanding amount at the end of the loan term.Open End Mortgage Vs Closed End Mortgage; However, the interest rate for open end mortgages is usually higher.
Open end mortgages are suitable for borrowers who intend to repay the loan within the agreed loan term. There is no risk involved if the borrower does not make timely payments.
But, it is possible to close the loan and start the payments at any time.Open End Mortgage Vs Closed End Mortgage; This is why it is not considered as a safe option.
Benefits of Closed End Mortgages
There are several benefits of closed end mortgages. If the borrower intends to make the loan repayment within the loan term, then this type of loan is the best choice. There is a minimum amount that you need to repay at the end of the loan term.
The borrower is liable to pay the minimum amount, but the interest rate is usually lower than the one for open end mortgages. Also, you are able to make extra payments at any time if you want.
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Advantages of open end and closed end mortgage loans
Open end and closed end mortgage loans have their own advantages. A closed end loan is considered the best, because it provides you with flexibility. You are allowed to make extra repayments at any time of your choosing.
On the other hand, an open end mortgage is a good option if you intend to repay the entire loan amount.
But, you will need to bear the interest rate in both cases.
Conclusion:
If you are looking for a mortgage option then it is better to go for a closed end mortgage. You will get the flexibility to change the repayment period anytime and it will also give you a lower interest rate.
