No matter if you’re taking out a new mortgage or renewing an existing one, you have to pick between a closed or open mortgage. The majority of homeowners usually go with closed mortgages, but there are particular circumstances where open mortgages make more sense. Depending on your specific situation, it might be beneficial to consider a convertible mortgage. It’s crucial to understand your choices so you can make the best mortgage decision for your needs.

Understanding Open and Closed Mortgages: A Quick Guide

A closed mortgage is exactly what it sounds like. If you take out a closed mortgage, you will be required to conform to a set of rules and terms upfront. Mortgage providers prefer this option because it makes their job easier and ensures the borrower won’t be able to skip out on the loan without consequence. This is why the majority of mortgages are closed.

An open mortgage is more flexible. A typical open mortgage requires a small down payment and a monthly mortgage payment. The difference is that you’re allowed to pay more whenever you want. It’s important to note that this isn’t a loan – you don’t receive a loan when you open a mortgage. Instead, you open a line of credit, and you’re allowed to draw from this line of credit as much as you want.

Pros and Cons

The biggest benefit of open mortgages is flexibility. Not only can you pay more whenever you want, but you can pay less too. This can be beneficial if you’ve had to sit out for a few months because you were unemployed. Additionally, open mortgages are good for people who need to pay off a large credit card or student loan. With an open mortgage, you can take money from your mortgage to pay off other bills.

The disadvantage of open mortgages is that you can run out of money. This is especially true if you’re not a great money manager and you get yourself into a situation where you have to take more than you’re making. In other words, if you open a mortgage and you’re not prepared to pay the high-interest rate, it will swallow up your life savings. You need to be prepared for that.

Which One Is Best for Me?

The right mortgage for your needs depends on the specifics of your financial situation. If you’re paying down a large amount of debt and you need a break from your regular mortgage payments, then an open mortgage might be a good choice for you. If you have no credit cards or other debts that you’re paying off, then it’s probably not worth it to put a line of credit on your home. As always, make sure you’re working with a mortgage professional that can look at your unique situation and make recommendations. It’s extremely important for you to ensure you’re properly prepared for a home purchase before starting the mortgage process.

Conclusion

When you understand your options, it becomes a lot easier to make the right mortgage decision. If you’re ready to get started with your home mortgage, contact a reliable mortgage firm to speak with a mortgage professional.

If you are looking for open mortgages in Ontario, contact Mills Financial Group. We are an award-winning Canadian mortgage brokerage with a national team of over 800 qualified and accredited mortgage brokers, agents and associates providing residential and commercial mortgage services.