One of the many important decisions you’ll need to make when applying for a mortgage is whether you want an open vs. closed mortgage. They are designed with different borrowers in mind and can result in significant costs if the decision is not made based on your individual financial goals or situation.
An open mortgage is one with flexible options to increase your mortgage repayments, either by increasing your regular payments, making a lump sum payment, or paying it off entirely without penalty. This flexibility comes with a price, as open mortgages usually have higher interest rates. However, if you expect to receive additional cash to pay off the mortgage an open mortgage would save you from pre-payment penalties.
A closed mortgage, on the other hand, penalizes you for paying off all or part of your mortgage early. Most lenders offer pre-payment and or accelerated payment options, which if taken advantage of could help you pay off your mortgage sooner. Closed mortgages have significantly lower interest rates.
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