Closed Mortgage

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Closed Mortgage

September 30, 2025


What is a Closed Mortgage?

A closed mortgage is a type of mortgage that restricts the borrower’s ability to pay off the loan early without incurring a penalty. While it generally offers lower interest rates than open mortgages, repayment options are limited to specific prepayment privileges outlined in the mortgage contract.

Why Closed Mortgages Matter in Real Estate

Closed mortgages matter in real estate because they provide borrowers with predictable payments at lower interest rates, making them popular for long-term financing. However, the limited flexibility can be costly if borrowers want to refinance or repay early due to penalties.

Example of a Closed Mortgage in Action

A homeowner with a closed mortgage cannot pay off their $300,000 balance early without facing a significant penalty. Instead, they use the prepayment privilege to make an annual lump sum payment within allowed limits.

Key Takeaways

  • Closed mortgages restrict early repayment without penalty.
  • Offer lower interest rates compared to open mortgages.
  • Provide predictable long-term financing.
  • Penalties apply for breaking or paying off early.
  • Suitable for borrowers planning to hold mortgages long-term.

Related Terms

  • Open Mortgage
  • Prepayment Privilege
  • Mortgage Penalty
  • Fixed-Rate Mortgage
  • Mortgage Term

Additional Terms

Public Realm Improvements

Public realm improvements are enhancements to public spaces such as sidewalks, parks, plazas, and streetscapes, often funded or contributed by. more

Mortgagee in Possession

A mortgagee in possession is a lender who takes control of a property after borrower default, but before foreclosure or power of sale. The lender. more

Lease Surrender Agreement

A lease surrender agreement is a negotiated contract between a landlord and tenant that ends a lease before its scheduled expiration. Terms may. more

Green Infrastructure

Green infrastructure refers to natural or engineered systems that manage stormwater, reduce heat, and improve sustainability in developments.. more

Escrow Holdback

An escrow holdback is a portion of funds withheld at closing and held in escrow until specific conditions are met, such as completion of repairs,. more

Underused Housing Tax

The Underused Housing Tax (UHT) is a federal annual 1% tax on the value of vacant or underused residential property owned by non-resident,. more

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