Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Courses
  • Home
  • Economics, Finance, & Analytics
  • Banking, Lending, and Credit Industry

Closed-End Mortgage - Explained

What is a Closed-End Mortgage?

Written by Jason Gordon

Updated at April 18th, 2022

Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Marketing, Advertising, Sales & PR
    Principles of Marketing Sales Advertising Public Relations SEO, Social Media, Direct Marketing
  • Accounting, Taxation, and Reporting
    Managerial & Financial Accounting & Reporting Business Taxation
  • Professionalism & Career Development
  • Law, Transactions, & Risk Management
    Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
  • Business Management & Operations
    Operations, Project, & Supply Chain Management Strategy, Entrepreneurship, & Innovation Business Ethics & Social Responsibility Global Business, International Law & Relations Business Communications & Negotiation Management, Leadership, & Organizational Behavior
  • Economics, Finance, & Analytics
    Economic Analysis & Monetary Policy Research, Quantitative Analysis, & Decision Science Investments, Trading, and Financial Markets Banking, Lending, and Credit Industry Business Finance, Personal Finance, and Valuation Principles
  • Courses
+ More

Table of Contents

What is a Closed-End Mortgage?How Does a Closed-End Mortgage Work?Restrictions Imposed by Closed-End Mortgages

What is a Closed-End Mortgage?

A closed-end mortgage is a mortgage agreement that does not permit a borrower to take an additional amount without repaying the current mortgage and taking permission from the mortgage lender. A closed-end mortgage is otherwise called a "closed mortgage", this type of mortgage restricts a mortgagor from refinancing, renegotiating or seeking an additional loan without paying a breakage fee to the lender. Taking out a second mortgage without receiving permission from a lender is not admissible in a closed-end mortgage. This type of mortgage also disallows the use of collateral that has been previously pledged to another lender.

Back to:BANKING, LENDING, & CREDIT INDUSTRY

How Does a Closed-End Mortgage Work?

Closed-end mortgages are common in Canada, these mortgages offer lower interest rates and are not repaid earlier than the maturity date. A closed-end mortgage as a restrictive mortgage is more appropriate for mortgagors who intend to occupy a home for a long period without plans of moving. This is because any attempt to renegotiate or refinance the mortgage attracts extra costs that a borrower is mandated to pay to the mortgage lender. While the closed-end mortgage offers lower interest rates to the borrower, it grants a form of security to the mortgage lender.

Restrictions Imposed by Closed-End Mortgages

Usually, closed-end mortgages have a fixed interest rate or variable rate, these mortgages prohibit borrowers from using the collateral used for the mortgage to secure an additional loan. Quite a number of restrictions are imposed by closed-end mortgages, they include;

  • A borrower cannot use collateral that has been previously used for another loan in a closed-end mortgage.
  • A borrower that is 10 years into a 20-year closed-end mortgage and has repaid half of the debt cannot seek additional financing or equity loan without seeking the consent of the lender or pay an extra brokerage fee.
  • No other lender can claim the collateral used in a closed-end mortgage.
  • A mortgagor whose first and primary mortgage is open-ended can secure a closed-end mortgage as a second mortgage.
closed-end mortgage

Was this article helpful?

Yes
No

Related Articles

  • Bank Identification Number - Explained
  • Regulation U - Explained
  • Payday Loan - Explained
  • Default Risk - Explained



©2011-2021. The Business Professor, LLC.
  • Privacy

  • Questions

Definition by Author

0
0
Expand