What type of mortgage allows borrowers to increase their payment amount or make lump sum payments without penalty?
Correct Answer
C) Open mortgage
An open mortgage lets the borrower prepay any amount, including paying it off entirely, at any time without a prepayment penalty. In exchange, open mortgages usually carry a higher interest rate than closed mortgages for the same term.
Why This Is the Correct Answer
Unrestricted prepayment without penalty is the defining feature of an open mortgage. The borrower can increase payments, make lump sums or repay the whole balance at any time, usually in return for a higher interest rate.
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