The only home mortgage that is repayable at any time without penalty is the open mortgage. And most of these have variable interest rates.
Of course, some open mortgage have a fixed interest rate for 5 years, but this rate is very much higher. So, it might be not useful for you to get fixed rates.
And there is a big question about this subject. If there is no penalty with them, why do everybody do not take them? The answer: because it is more expensive…
Open mortgage do not prevent you to take more time to repay or leave your bank to get another lender. It is the reason why banks offer better interest rates to customers who agree to get close mortgage: the customer “loyalty” he deserves a better rate.
And the explanation comes from the way banks work. Banks sell their mortgage portfolios to cover their initial investment. Thus, they want to be certain that customers will stay with them for all the duration of the term.
Another reason is that they do not want everyone to go for refinancing every time interest rates go down…
What is the cost of an open home mortgage?
This option to repay your home at any time without penalty implies an additional cost you will pay through a higher interest rate.
In the case of an open mortgage, its rate is usually the base rate without discount or reduced from 0.25%. But a variable closed mortgage loan usually has a rate of 0.75% less than the base rate.
For example, if the base rate is 6.5%, then the variable and closed rate will range between 5.6% and 5.75%. But the open and variable ones will have a rate between 6.25% and 6.5%.
Now, you might ask yourself if it really worth it… Yes, but only in a very rare situation: if you plan to pay off your house or change of financial institution in the next 12 months… So, you are better to think about it before to choose an open mortgage…
