Open Mortgage Vs. Closed

Home mortgages affect your financial wellbeing.

Understanding how mortgages work is an important part of planning your financial future. Whether a mortgage is open or closed could have a dramatic effect on your life.

Interest Rates

Closed mortgages always have lower interest rates than open ones. This is one reason people chose closed mortgages.

Financial Planning for Long Term

Extra cash can go toward the mortgage principal.

While you can sell a house with a mortgage, usually doing pays the bank instead of yourself. You should try to pay the mortgage before you leave. An open mortgage allows accelerated payments.

Prepayment Penalties

You can pay back a small percentage of the principal above your monthly payment with a closed mortgage, but it is your responsibility to not overpay that amount.

Location Considerations

If you expect your neighborhood prices to diminish, a closed mortgage could be problematic; you do not want your mortgage higher than your home.

Retirement Considerations

If you are selling your home for retirement purposes, you want to pay off your mortgage prior to the sale. This would be impossible with a closed mortgage.

Conclusion

Whether to have a closed or open mortgage is a question all homeowners need to consider.

References

• "Personal Financial Planning"; Theory and Practice"; Michael A. Dalton and James F. Dalton; 2008