Closed-end Mortgage
Definition of "Closed-end mortgage"
A closed-end mortgage is a mortgage in which the collateralized property cannot be used as security for another loan. See also open-end mortgage for a better understanding of the differences between the two options.
The definition of a closed-end mortgage is a mortgage that is restrictive in the sense that the lender cannot prepay, refinance, or renegotiate it. If they do, the lender will be required to pay breakage costs. In contrast to other types of mortgages, in closed-end mortgage loans, the collateral pledge can only be for an asset that was not used in a pledge for another mortgage.
As analyzed, the closed-end mortgage loans meaning benefits home buyers the most, especially those that do not intend to move to another house or sell anytime soon. A closed-end mortgage also allows for a long-lasting commitment at a lower interest rate, unlike an open-end mortgage. The closed-end mortgage was designed for home buyers, young families who want to purchase a home at the start of a life shared together.
How do Closed-End Mortgages work?
A closed-end mortgage is considered less risky for homebuyers and can come with a fixed or variable interest rate. It also imposes certain restrictions on the borrowers and limitations. These can make it difficult for lenders to deal with as it affects the financial aid they could otherwise access if not for this mortgage. Some of these restrictions are:
- No possibility of repayment, renegotiation, or refinancing;
- It blocks the possibility of taking out a home equity loan;
- There are penalties for lenders who decide to pre-pay their mortgage principal.
There are some good aspects that make it, as mentioned above, a less risky option for homebuyers. As it was stated in the beginning, a closed-end mortgage does not allow for collateral to be used to pledge other mortgages or loans. This means that in the unfortunate situation when a borrower defaults their mortgage, goes bankrupt, or is unable to meet their payments, their collateral will not be taken away by other lenders. In order to improve the borrower’s situation, the lender can also lower the interest rates for the borrower.
Popular Real Estate Terms
A Construction method of using twice the number of framing members to provide additional structural strength. ...
Item falling under Section 57 of the Internal Revenue Code that may result in the imposition of the alternative minimum tax (AMT). These items of otherwise exempt income or deductions or of ...
A closed-end mortgage is a mortgage in which the collateralized property cannot be used as security for another loan. See also open-end mortgage for a better understanding of the ...
Corporation whose stockholders are taxed as partners. That is, income is taxed as direct income to the shareholders. The key advantage of this tax treatment is that shareholders escape ...
A zero lot line is a term in residential real estate that refers to houses that are either very close to or at the edge of the property line. These houses are also called zero lot line ...
Want to know what Net Listing means? Well, Net Listings are a type of listing where the home seller sets a minimum price he/she is willing to sell the property for and whatever amount above ...
(1) Judgment against a defendant who does not respond to the plaintiffs lawsuit or fails to appear in court at the hearing or trial date. (2) Judgment issued by the court against the ...
Typically, the term rider defines a financial concept, implying a written modification applied to an insurance policy, altering its initial clauses and provisions. The rider can update the ...
Situation where a neighbor hood is gradually occupied by progressively lower income people. ...
Have a question or comment?
We're here to help.