What is a Closed Mortgage
A closed mortgage is a type of mortgage loan that offers stability and predictability in terms of interest rates and monthly payments. The interest rate on a closed mortgage is typically lower than that of an open mortgage and remains fixed for the entire term of the loan. This means that the monthly payment amount remains consistent and predictable, making it easier for borrowers to plan their budgets and make payments on time.
Pros? Cons? Huh?
However, the trade-off for the lower interest rates and consistent payment terms is that a closed mortgage may not offer much flexibility regarding early repayment. While you are allowed to make a lump sum payment of up to 20% of the total mortgage balance once a year, you may not be able to pay off the loan in full before the end of the term or make extra payments toward the mortgage principal.
Despite the lack of flexibility, the primary benefits of a closed mortgage are the lower interest rates and stable payment terms. This makes it an ideal choice for borrowers looking for a mortgage that provides a predictable and manageable monthly payment, and who are comfortable with the idea of making regular payments for the entire term of the loan.