What Is an Open-Ended Mortgage?
An open-ended mortgage is a lien against a property in which a borrower can borrower up to a set limit, repay the debt and borrow up to that limit again. It is often referred to as a line of credit.
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Significance
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Many borrowers procure home equity lines of credit to allow the accursed interest to be written off as a tax deduction on their upcoming year's taxes.
Function
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A home equity line of credit, or open mortgage, is similar to a credit card in the fact that the balance can be charged up and paid down an unlimited number of times.
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Types
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Most open mortgages are interest-only mortgages with variable interest rates that are tied to the prime rate. If a borrower wants to reduce the balance, he has to make additional principle payments on top of the interest-only payments.
Considerations
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Many borrowers purchase a home equity line of credit at the time of their first mortgage closing to save on closing costs and to have it available if needed later .
Benefits
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Not only is the interest on a home equity line of credit deductible, but an open home equity loan is an easy and fast way to access a borrower's home equity without having to purchase an expensive refinance on the residence.
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References
- Photo Credit form -3 image by Rog999 from Fotolia.com
