What style of variable should I take? Open, closed, or LOC

Open? Closed? Line of Credit?

I get asked often whether or not I should go with an open variable, closed variable or if I should get a line of credit.

This is what I say.

The only time you would want to consider taking an open variable mortgage, meaning you have the ability to pay the mortgage out at anytime without penalty, is when you know for sure that you WILL be paying off your mortgage within the first 10 or so months.

In order to have the abililty to pay out your mortgage without penalty the lender or bank will charge you an increased amount over prime as opposed to a discount off of prime. This could be a large spread of over 1%.

If you kept your mortgage for more than the 10 months, it would be cheaper, interest wise, to pay the penalty on the mortgage, which is a 3 month interest penalty. This is cheaper than paying the premium on Prime on an open for the 10 months.

Every case is of course different and this is why we talk about planning and strategy from the get go.



Now when people talk about a line of credit there's one one important thing that needs to be said first. You can only obtain a line of creit with 20% or more equity in your home. If you have less than 20% equity, you can NOT obtain a LOC.

I also say to people, why would you want a secured line of credit at say Prime +.50 or higher, when you can have the same amount of money at prime -.50 or deeper today? You'd be paying 1% more for the priviledge of that LOC.

Well, I guess the interest only payments may be enticing, however, in my opinon, and I beleive debt is not good and should be cleared, paying that little bit extra and paying towards principal at a much lower rate is more realistic and a huge cost savings!


Of course though, everyone's situation is different and there may be a reason why you need a LOC attached to your mortgage. One being, you know a large sum of money is coming in. why pay a penalty on that portion of the mortgage your paying out.

Everyone needs to find a plan and strategy to make your mortgage work for you and not for the lender. This is what we'll do together!!