Understanding Closed Mortgage Prepayment Options
“Depending On The Lender, Closed Mortgage Prepayment Options Can Mean
Different Things”
In the most technical of definitions, a closed mortgage prepayment option would only exist if there was a bona fides arms length sale of the property.
Outside of property sale, there basically are no options for full prepayment and the borrower is going to required to continue on with the mortgage until the end of the term.
Depending on the lender, partial prepayment in different forms may be an option such as increasing the mortgages periodic payment or making lump sum payments from time to time.
The key point in discussing this is that the term closed mortgage is often used to explain a mortgage with a fixed interest rate.
In many of these situations, there are prepayment options available to the borrower.
So its going to be important to clearly understand the prepayment options that are available on any mortgage option in order to avoid any problems down the road.
While the standard definition of closed mortgage alluded to above is not the most common form of mortgage offered in the market, it is available through a number of lenders.
For mortgage lenders that do offer a truly closed mortgage with respect to prepayment, there are some potential benefits to the borrower.
As an example, in these situations where the lender is nearly certain to be receiving payments on closed mortgages funded, the mortgage lender may offer a very attractive interest rate.
So from the borrower’s point of view, if the borrower thinks he or she has little to any need to prepay the mortgage during a proposed interest term, the trade off of not having any prepayment options may be more than offset by a lower interest rate.
Once again, because there is to standard terminology in the industry with respect to how the phrase or closed mortgage is used from a marketing and product identification point of view, its going to be important to thoroughly understand any lender’s prepayment options prior to committing to a mortgage product.
About the Author Joe Walsh
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel