Closed or open mortgage: Which one is right for you? (so you can save money)

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Hi everyone, welcome to another edition of Homebuyer's School Today I'm joined by Mutjaba Syed Manager Mobile Mortgage Specialist with TD Canada Trust, and today the question we're gonna answer is, What's the difference between open and closed mortgage rates? So Mo, what is that difference? Yeah, so it's a great question The difference the main difference between open mortgage and a closed mortgage is that in open mortgage is there's not really a term attached to it You could actually leave that lender at any time without any penalties incurred A closed mortgage just means that technically you've signed a contract with the bank to be there for a certain time period so if you decided to go with a 5-year term you have to kind of stay with your 5-year term and then decide after that if you want to stick with the same bank or kind of go somewhere else, but with an open mortgage it's just–you can actually move at any time without actually incurring any penalties

So when should I pick an open versus a closed mortgage rate? Yeah, so it's–mostly what I would recommend to my clients is that if they're thinking of what's selling any time soon or leaving, or they're thinking about moving out of the country or moving cities, an open mortgage is a very good option at that time so you can get in for a very short time period and actually get out without paying heavy penalties to get out Once again it's a great conversation to actually have with your lender at that time and let them know about your future plans as well and that could help you determine what the best rates are for you guys, if open makes more sense or close makes more sense Does an open or closed mortgage rate have anything to do with a fixed or variable mortgage rate or completely simply separate things? Yeah so there are actually–that's a great question, so we have an open fixed mortgage rate and we also have open variable mortgage rates They are– predominantly it's going to be a little bit higher than the closed fixed mortgage rates and closed variable rates, and the reason is because banks offer discounts for clients–to attract clients when you're going with an open mortgage rate, there's no loyalty, what banks technically finds so it's going to be a little bit higher and technically in line with what all the banks are offering, so it's not going to be a discounted rate at all you know, it will be a little bit of a higher rate than the fixed, the closed fixed with a closed variable So in an open mortgage rate, say halfway through that term that you signed, you can just switch to another bank? Yeah absolutely, you could switch to a different lender which you feel like has better rates for you, has better terms for you

You can sell your home, you could do any of those things to actually get out of that mortgage, without any penalties So why did the banks actually provide the option of a open? Because wouldn't the banks want to you know, lock you into a mortgage with that particular bank? Yeah absolutely– but I think at the end of the day what we want to do is we want to actually give options to our clients, whatever it's going to be best fitted for their needs A lot of different life situations can happen where options are a great thing to have So for banks we want to be able to know what's best for them So Mo do you have anything else to add in terms of open and closed mortgage rates? Yeah absolutely, I would just recommend speaking with your specialist and bank or lender and see what's best for you, it kind of fits in with your guys budgeting, with your plans or future plans, and determine which kind of rates are going to be ideal for your situation

Perfect well thank you very much Mo Thank you very much everyone for joining us, remember to watch our video on the new mortgage rules in Canada Have a good day That's another edition of Homebuyer's School Tune in next time for more expert tips and tricks and visit homebuyersschool

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