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Closed vs. Open Mortgage

Most financial institutions offer closed and open mortgages.  In a closed mortgage, the term of the mortgage is fixed.  Although you may have some prepayment privileges, you cannot prepay the entire amount of the mortgage prior to the end of the term unless you pay a penalty (usually equal to the greater of three months’ interest or the interest rate differential with then current mortgages of a similar remaining term).  In most cases, any payment above and beyond the prepayment privileges will trigger a penalty.  In a fully open mortgage, you have the right to prepay any part or the whole of your mortgage at any time without notice and without having to pay any penalty.  Some financial institutions offer a hybrid between open and closed mortgages in which they place some restrictions on prepaying the entire mortgage amount.

 
 




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