When applying for a mortgage in Winnipeg, should you consider an open or a closed mortgage? The answer to that question really depends on what your overall needs happen to be. What you may be interested in is the overall end result for your loan. With a closed mortgage, you can incur financial penalties if you pay your loan off early. With an open mortgage, you have the freedom to successfully pay it off in advance without any such penalty occurring.
What is an Open Mortgage?
When you have an open mortgage, you have the ability to pay it off at your convenience. You can make extra payments at any time. It doesn’t matter if you have a variable or a fixed rate of interest. Keep in mind that even though you aren’t going to pay any penalty, you will have to pay a fee for discharge of the loan once it is all paid off.
The overall rate of interest with an open mortgage is usually going to be more expensive than with a closed mortgage. Still, if you are confident you will have the ability to pay the mortgage off in less time than you are committed to, then this could still be a viable option that can save you a great deal of money.
What is a Closed Mortgage?
With a closed mortgage, the rate of interest is typically going to be less than what you will pay with an open mortgage. However, by sticking with the original number of payments due on the loan, then you will pay more overall interest on that loan. There will be a penalty if you pay off the loan in less time.
However, you do have the ability to pay up to 20% of the original principle balance annually. It all depends on the overall terms that you have in place with a particular lender. The conditions of such a loan prevent it from being refinanced or renegotiated. This is a stable type of mortgage though and one that most people find easier to commit to.
Keep in mind though that even if you sell your home during the term of the loan, you will also have to pay a penalty. It will be either the Interest rate Differential or the total of 3 months worth of interest penalty assessed. The one that is the highest price is the one that will be applied.