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Once you’ve been approved for a mortgage it’s time to think about what kind of rules you want to apply to them. You can apply to both open termed and closed termed mortgages that have their own advantages and disadvantages. Research into the topic will give you a better idea of what is right for you when considering the length of your term, your down payment, monthly payments and interest.
A closed mortgage means that there are restrictions and what can be paid towards your loan. A closed mortgage is usually the more popular option considering it carries a lower interest rate. However, the terms of the mortgage may not be as flexible and may hold restrictions.
Main advantage: Lower interest rates, lower cost of borrowing.
Main disadvantage: No flexibility, hefty fines for those who want to refinance or break the mortgage before maturity.
An open mortgage gives the borrower much more flexibility. A borrower will have the freedom to pay down their mortgage in its entirety whenever they choose without fines. The borrower will also be able to pay whatever they want towards their mortgage. There are no rules.
Main advantage: Payment flexibility
Main disadvantage: Higher rate of interest
Choose and open mortgage if you expect a sudden influx of money whether it be an inheritance, a divorce settlement, sale of another property or insurance claim. If you have financial uncertainty it’s a better option. If you want to pay off your mortgage with flexibility choose an open mortgage.
If you want to pay less interest and decrease the cost of borrowing and have no qualms about being locked into conditions choose a closed mortgage. Closed mortgages are great for people who want to make stable payments that coincide with their budgets. Borrowers may pay less in interest in the long run and have a stable payment schedule.
Still not sure? Speak with a Loans Canada professional. We’ll help you determine what’s best for you.
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40 standout leaders in the Fintech space were awarded a Leaders in Lending Award by the Canadian Lenders Association.
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