If you are thinking about an open mortgage (taux hypothecaire) because you prefer the idea of the fr
If you are thinking about an open mortgage (taux hypothecaire) because you prefer the idea of the freedom of paying it off when you need to, make sure you understand the total costs.
An open mortgage will allow you to pay off your mortgage balance with no penalty; usually, however, this kind of loan is only available as a variable rate loan, or together with a line of credit.
If this option offers such freedom, you may be surprised that not all borrowers take advantage of it. The reason that they do not is because it is too expe ive.
Lenders offer their lowest rates to borrowers who commit to paying their mortgage for a fixed period of time - pret hypothecaire. They do this because they have a guarantee that the loan will not be paid off (or taken to an other lender) for a certain length of time.
So how much do open mortgages cost?
In order to have the freedom to pay off your home loan (hypotheque) at any time, and remove the guarantee the lender has that he will earn interest from you for a fixed time, the lender will need to have an increased up front earning.
If you compare a closed variable rate mortgage to an open variable rate mortgage, you will see that the closed rate mortgage can be offered as low as .75% below the prime rate. The open variable rate mortgage will usually be offered at the prime rate. Therefore, if the prime rate is 6%, the fixed variable will be 5.25% or maybe even lower, while the open variable rate will be 6%, maybe a little lower to 5.75%.
So does it pay to have an open mortgage? - pret hypothecaire
Yes, if you plan on paying off your mortgage or switching to another lending i titution within 12 months of obtaining the mortgage.
Here are the examples:
Mr. A intends to borrow $100,000 for his home and decides upon an open mortgage because he will be selling rental property and using the earnings in 12 months to pay off his mortgage (taux hypothecaire). His rate on the open mortgage is prime le .25%, 5.75%. During the first 12 months, he pays $5,634.20 interest and he has a loan balance of $98,133.94.
Mr. B secures a closed variable rate mortgage of $100, 000 with a rate of 5.1% (prime le 0.90% ). At the end of 12 months he pays off the mortgage with a payout penalty of $825.35 (two months interest). During this period, he has paid only $4,999.70 in interest during the 12 months and his balance is $97, 951.97.
Mr. A (with an open mortgage) has paid $816.47 more for his mortgage de ite Mr. B having paid an interest penalty of $825.35. The cost of each mortgage becomes practically equal after 12 months.
Conclusion:
An open mortgage (taux hypothecaire) can be astrategicmortgage tool that can prevent high early payout penalties. It should, however, only be used if the chances are very high that the home loan will be paid off in the next 12 months. If the mortgage is not expected to be paid out within that time frame (13 months or more) it is more advantageous to take the fixed rate home loan and pay the payout penalty.
Taking the time to choose the right mortgage strategy that is personalized to your ecific situation can result in big savings.
An open mortgage will allow you to pay off your mortgage balance with no penalty; usually, however, this kind of loan is only available as a variable rate loan, or together with a line of credit.
If this option offers such freedom, you may be surprised that not all borrowers take advantage of it. The reason that they do not is because it is too expe ive.
Lenders offer their lowest rates to borrowers who commit to paying their mortgage for a fixed period of time - pret hypothecaire. They do this because they have a guarantee that the loan will not be paid off (or taken to an other lender) for a certain length of time.
So how much do open mortgages cost?
In order to have the freedom to pay off your home loan (hypotheque) at any time, and remove the guarantee the lender has that he will earn interest from you for a fixed time, the lender will need to have an increased up front earning.
If you compare a closed variable rate mortgage to an open variable rate mortgage, you will see that the closed rate mortgage can be offered as low as .75% below the prime rate. The open variable rate mortgage will usually be offered at the prime rate. Therefore, if the prime rate is 6%, the fixed variable will be 5.25% or maybe even lower, while the open variable rate will be 6%, maybe a little lower to 5.75%.
So does it pay to have an open mortgage? - pret hypothecaire
Yes, if you plan on paying off your mortgage or switching to another lending i titution within 12 months of obtaining the mortgage.
Here are the examples:
Mr. A intends to borrow $100,000 for his home and decides upon an open mortgage because he will be selling rental property and using the earnings in 12 months to pay off his mortgage (taux hypothecaire). His rate on the open mortgage is prime le .25%, 5.75%. During the first 12 months, he pays $5,634.20 interest and he has a loan balance of $98,133.94.
Mr. B secures a closed variable rate mortgage of $100, 000 with a rate of 5.1% (prime le 0.90% ). At the end of 12 months he pays off the mortgage with a payout penalty of $825.35 (two months interest). During this period, he has paid only $4,999.70 in interest during the 12 months and his balance is $97, 951.97.
Mr. A (with an open mortgage) has paid $816.47 more for his mortgage de ite Mr. B having paid an interest penalty of $825.35. The cost of each mortgage becomes practically equal after 12 months.
Conclusion:
An open mortgage (taux hypothecaire) can be astrategicmortgage tool that can prevent high early payout penalties. It should, however, only be used if the chances are very high that the home loan will be paid off in the next 12 months. If the mortgage is not expected to be paid out within that time frame (13 months or more) it is more advantageous to take the fixed rate home loan and pay the payout penalty.
Taking the time to choose the right mortgage strategy that is personalized to your ecific situation can result in big savings.
