Different Types of Mortgages

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  • Open Mortgage: Open mortgage is the one where you can make large payments or pay off the entire mortgage without any penalty. It is the kind of mortgage that offers maximum flexibility. Because this mortgage provides the flexibility of paying off part or entire mortgage before the term is complete, the homeowners are willing to accept the fluctuations in the interest rate.
  • Closed Mortgage: Closed mortgage is one that has a pre-determined interest rate, over a predetermined period of time. However, in the case of a closed mortgage, the buyer will have to pay the penalty if he/she fully pays the loan back before the tenure has ended. In the case of a closed mortgage, the buyer has the choice of selecting a fixed rate or variable/adjustable rate. One can select any time of the rate depending on their needs and preferences. It should be noted that interest in the case of a closed mortgage is lower than the open mortgage. In the case of a closed mortgage, sometimes the lenders allow the loan owners to make the lump sum payment of 10%,15%, 20% of the original amount, once in a year, without charging any penalty. This payment becomes part of paying down the principal amount.
  • Convertible Mortgage: As the name suggests, it is the kind of mortgage that can be converted during its tenure. This kind of mortgage comes with an agreement that allows the loan owners to change the type of the mortgage they are holding during its tenure, for instance, if you have an open mortgage and wishes to change it to a closed mortgage at some point of the tenure, opting for a convertible mortgage is the right choice. It also offers lower interest rates as compared to the open mortgage and has the option of switching to the closed mortgage. It should be kept in mind that the loan owner can also convert variable rate mortgage to fixed-rate mortgage, even when the loan owner has originally opted for the variable rate mortgage. However, the conversion should always take place before the term ends.
  • Hybrid Mortgage:  Hybrid Mortgage in which there is more than one type of mortgage. As the name suggests it is the combination of more than one type of mortgages, contained in a single registration. This mortgage can include a fixed-rate portion, variable-rate portion, a line of credit portion, or a combination of any of these types. Each lender gives on his own a unique name to such mortgages.
  • Reserve Mortgage: this is the type of mortgage which allows the homeowners of 55 years or plus to convert their home equity into a lump-sum payment or monthly cash payment. This is generally done to secure their living expenses. In the case of a reserve mortgage, when the homeowner no longer wants to occupy their property as their primary residence, or upon the death of the borrower, then the balance which is due is settled by selling off the property.

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