“A closed mortgage is one that cannot be prepaid, renegotiated, or refinanced before the end of the term without paying a prepayment charge.”
tbh im not really understanding what this is. What prepayment charge? And why not prepaid?
And for port mortages what is the purpose of switching over to the morgtage from orgin to destination?
In: 1
Closed mortgages and port mortgages aren’t really related.
A mortgage is just a fancy kind of bank loan, where the collateral (the thing the bank gets to seize if you stop paying) is your house.
You take a loan, agree to payment terms, and you keep paying that until it’s paid off. If you stop paying, they take your house.
With most mortgages, if you have extra money or interest rates change or something changes, you can go to the bank and basically create a new loan on the new terms and just “roll” the old loan into it. A closed mortgage means you can’t do that without paying a penalty…you can get out of the mortgage but only by paying the fine.
Porting a mortgage is moving an existing loan to a new house (same loan but the collateral switches to the new property). The alternative is closing the old mortgage and creating a new one on the new property.
The only way they’re related is that you wouldn’t be able to port a closed mortgage without paying the fine.
Edit: corrected a double “closed” in the first line
If you’re a lender on a mortgage, you expect to make a certain amount of money on the interest paid on that loan over its lifetime. However, if the borrower pays it off early, then the lender stops getting interest, and it loses what it was expecting under the loan agreement. A prepayment penalty ensures that the lender is going to get what it was originally expecting under the loan.
Latest Answers