What is the difference between an open-ended and a closed-end mortgage?

In New York, mortgage law defines closed-end and open-ended mortgages. A closed-end mortgage is a traditional loan that is generally taken out when a person buys a new home. This type of loan is a one-time payment that must be repaid within a fixed time frame, usually 15 or 30 years. The interest rate is usually fixed for the life of the loan and the borrower pays back the loan in regular installment payments. An open-ended mortgage, on the other hand, is a type of loan that allows the borrower to borrow more money after they have paid off a portion of the original loan. This type of loan is referred to as a home equity line of credit or a HELOC. The lender will usually set a borrowing limit and the borrower can draw up to that amount as needed. Payments on the loan are based on the amount of money that is borrowed and can be paid off at any time. The interest rate is usually variable and is based on the current market rate. The main difference between a closed-end and open-ended mortgage is that the borrower is able to borrow more money with an open-ended loan and the interest rate is usually variable. Additionally, payments on an open-ended loan are based on the amount of money that is borrowed, whereas payments on a closed-end mortgage remain the same for the life of the loan.

Related FAQs

What documents do I need to provide to a lender to qualify for a mortgage?
What is an escrow account?
What is the role of the Appraiser in the mortgage process?
What is a mortgage-backed security (MBS)?
How can I calculate my monthly mortgage payments?
What is the best way to shop for a mortgage?
How do I know if I have a good mortgage loan offer?
What is a "point" on a mortgage?
What is a prepayment penalty?
What is the maximum mortgage loan amount I can qualify for?

What is the difference between an open-ended and a closed-end mortgage?

Related FAQs

Related Blog Posts