Open Mortgage | Propertylogy

Open Mortgage

By on April 18, 2019

An open mortgage is a home loan that the borrower can fully repay at any time without incurring any penalty fees.

It should not be confused with an open-end mortgage.

Lenders usually set a penalty fee which can either be a flat fee or as a percentage of the loan balance should borrower fully redeem a loan.

This is especially so when there is a lock-in period or a minimum hold period.

Such terms make up for the costs which they incurred for acquiring the customer in the first place.

An open mortgage goes against the grain and therefore is not common.

A way that it comes into being is with interest only loans.

For example, a borrower might be paying interest on loans for 3 years. Upon completion of the 3 years, the home loan converts to an open mortgage where the borrower can fully repay the principle without any prepayment penalties. This is because the lender has already profited from the deal via the interest-only payments.

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