Most homeowners need a mortgage loan to be able to finance the purchase of a home. But did you know there are many types of mortgages? Today, we're going to give you a breakdown of two popular types. This is Open vs Closed Mortgages.

Open Mortgages

Open mortgages offer more flexibility to the borrower and the freedom to make additional payments whenever you can. You can make prepayments, or even a full payment, at any time without penalty.

The type of buyers who would benefit most from an open mortgage are people who plan to pay off the loan early. They might be expecting their income to increase significantly in the future, or gain an inheritance.

By paying it off early, the buyer has the opportunity to save on the amount of interest they pay over the amortization period. But, the downside is that in comparison with a closed mortgage, the interest rate is going to be significantly higher. If you don't actually pay it off faster, you'll end up paying more in interest.

Closed Mortgages

Closed mortgages come with specific payment terms that must be adhered to throughout the life of the mortgage, and your payment options are much more limited.

A big benefit of a closed mortgage is that the interest rate is lower than open mortgages. But if you want to make extra payments, make sure you know exactly what is privileged to you by the lender. When getting a closed mortgage, depending on your lender, you may be able to pay 10%, 15% or 20% of the original principal on your home each year.

If you have the cash you can take big chunks out of that principal every single year in addition to your regular mortgage payments.

What is Your Goal?

There are many different mortgage options. So if paying your home off faster is your goal, you should carefully consider which type of mortgage is right for you. And if your goal is to pay your home off faster check out our videos on How to Pay Off Your Mortgage Early, and Mistakes to Avoid When Paying Your Home Off Early.

Great ways you can become mortgage-free faster.