What is an open mortgage?
An open mortgage is a financial product that is part loan and part line of credit. The difference with a traditional mortgage is that it allows you to draw down the principal you have already repaid. Conditions such as the interest rate and the maximum amount that can be drawn down, etc. are agreed when the mortgage is arranged.
To gain a better understanding of this term, you need to know the difference between a secured loan and a secured line of credit, because although they might sound the same, they serve different purposes.
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A secured loan is a product through which a bank lends money for the sole purpose of buying a property. The amount loaned may correspond to the total amount of the property you want to buy or only part of it, and it will depend on factors like the financial effort you have to make or the outcome of the property appraisal.
Secured line of credit:
In this type of financial product, the bank lends a limited amount of money and you decide whether you want to draw down all or part of it, when you want to draw it down and what you want to use it for. As with any personal loan which you gradually pay back in instalments, if you need extra funds you can draw down a certain amount of money that may differ from the initial amount agreed.