In the previous article, we explain how works open home mortgages in relation with closed ones. We also discussed interest rates of that kind of mortgages. In this article, we will see examples to illustrate the difference.
1. Imagine you decide to take an open home mortgage of $100,000 and you think you will be able to repay it in full in the following years (the next 12 months) because you will sell another house. You choose a variable open rate at 5.75%, the base rate minus 0.25%. After 12 months, you will have paid $5634 in interest fees and the balance will be $98,133.94 $.
2. In another scenario, imagine you decide to choose a variable but closed one. Its rate will be of 5.25% (base rate of 6% minus 0.75%). After one year, you repay it entirely and pay a penalty of $825.35 that represents two months of interest. But even with that penalty, you will have paid more on the balance of your debt than if you took an open mortgage: your balance is $97,951.97, approximately 185$ less than the first option.
To synthesize, in the first scenario, you pay $816.47$ more but in the second scenario you pay a penalty of $825.35, big deal! Both strategies are almost equal after one year.
An open mortgage loan is a strategic tool you can use to save on the penalty but almost have to be sure you will be able to repay it entirely in the first year, before to renegotiate, not a month more…
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