Open Mortgage vs Closed Mortgage

Open mortgage and closed mortgage differ in the method of payment. Open mortgage is flexible, not time-bound and charged at low interest rates whereas, closed mortgage is bounded by time, high interest rates and you can pay off your mortgage only by selling the property.

Open mortgage and closed mortgage are two types of mortgages with differences between them. Although both of them are types of mortgage, the main difference between them lies in the method of payment. In the case of a closed mortgage, you are bound by time and hence you can pay off your mortgage only by selling the property.

On the contrary, open mortgage is not so. You need not sell your property to pay off your mortgage. Instead open mortgage allows you to pay off your mortgage without any penalty charges whatsoever. In fact it can be said that open mortgage is not a time-bound mortgage like closed mortgage.

Since open mortgages do not carry penalty payments, it is offered only for shorter periods. Closed mortgages are usually offered only for long periods. The time period for open mortgage is usually between six months and a year. Since the time period is very short for open mortgage, it is quite natural that the interest rate is very high. On the contrary the interest rate is not very high in the case of closed mortgage.

Closed mortgage does not allow refinancing on the mortgage before the stipulated term gets over. Of course you can still renew the mortgage in the case of closed mortgage provided you pay penalty charges. The decision to charge penalty lies of course with the mortgage provider.

One of the best advantages of a closed mortgage is its long tenure. The time period in the case of a closed mortgage can be as long as 25 years. It can be anywhere between 6 months and 25 years.

Open mortgage system is more flexible than the closed mortgage system. It is flexible in the sense that you close the plan at any time you want without the payment of penalty charges.

Recap:

The differences between open and closed mortgage plans are:

• Closed mortgage plans are available for longer periods of time whereas open mortgage plans are meant for short duration of time.
• Closed mortgage plans are characterized by high interest rates whereas open mortgage plans are characterized by low interest rates.
• Open mortgage is flexible in the sense that it can be closed at any time without paying any penalty charges whereas you have to pay penalty charges if you are to close a closed mortgage.
• You cannot refinance a closed mortgage before the end of the term of mortgage where as you can go for a fresh mortgage in the case of an open mortgage plan.

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