Closed end mortgages are those that do not permit the mortgagor to make a pre-payment or pay off the loan in full before the maturity of the contract. Unlike open-end mortgages which allow the mortgagor or borrower to pay off the owed amount in full before maturity, closed end mortgages are not as flexible as open-ended ones. Another point that sets these types of mortgages apart is that the homeowner needs to take permission of the mortgagee in order to secure the property as collateral for a second mortgage.

• In closed-end mortgages, the amount that is involved cannot be increased or extended which is not the case with open-end mortgage contracts. However there are certain advantages of closed-end mortgages even though they may seem inflexible and lender-friendly. The biggest advantage of such mortgage is that the mortgagor or the borrower may be offered lucrative interest rates because of the competition and the benefits to the mortgagee.
• Such type of mortgage is available in fixed as well as in variable interest rates and are beneficial to the lender in more than one way. In fixed rate mortgage, the lender can easily determine the amount of profit that can be made and also ensure that the risk associated with the contract is mitigated. Another advantage to the lender in such mortgage is that the assets cannot be used as collateral again by the mortgagor. This not only reduces the risk for the lender but also ensures a smooth foreclosure procedure if required.
• From the borrower’s or mortgagor’s point of view, these mortgages can be beneficial if there is a good probability that the contract will be successfully concluded and the owed amount paid in full. For people who have a steady income and do not want the risk of taking another loan on the same property, closed-end mortgages can offer attractive rates even though they are more binding in nature.
• Another major difference between a closed end and an open-end mortgage is the timeframe. Open-ended mortgages may be short term compared to closed-end ones. Usually an open end mortgage can last for ten to fifteen years whereas a closed mortgage is usually for twenty to thirty years. Therefore a closed-end mortgage is long term in nature and requires more commitment on the part of the borrower or the mortgagor.
• The bottom line is that in such mortgages, the principal cannot be increased or decreased and remains the same. This is not the case with open ended mortgages where the loan can be amortized according to the desire of the mortgagor or the borrower.

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