Foreclosures, Glossary

On The Case: Open-Ended Mortgages and Foreclosure vs. Forbearance

What is an Open-ended Mortgage?

Signing an Open-Ended Mortgage Agreement

An open-ended mortgage basically means that you can request an increase in a loan amount from a lender. This type of loan is for people who might need more flexibility than usual. For example, if they are buying land and then plan to build later, or in a situation where they believe it’s possible they will have to finance more at some point.

The big advantage of an open-ended loan is that a borrower can request additional funds without having to go through the loan process again. This means considerable savings on fees, closing costs, etc. However, there are strict limitations. An open-ended mortgage is basically like a home equity loan. A borrower can ask for more as long as certain conditions are met based on the value of the home and the percentage of borrower equity in the property. Secondly, there is usually a ceiling on the amount that can be requested. Finally, because the borrower may request more funds at different times, the interest rate will vary. If the homeowner first obtained a loan with a 4% interest rate, but then rates went up to 5%, they will pay 5% on the extra amount they borrow, although their original loan amount would still be fixed.

What is the Difference between Foreclosure and Forbearance?

Home Foreclosure Sign

Basically, forbearance is a step taken to avoid a foreclosure. If a borrower is having temporary difficulty making their mortgage payments due to sudden illness, loss of a job, etc, then they can ask for a forbearance in which their lender agrees to delay filing for a foreclosure. This gives the borrower a chance to get back on track. Forbearance might involve giving the homeowner a break on making any payments for a short while,  a reduced monthly payment, or payment of just the interest portion of the loan, etc. However, it is understood that there is a designated time-frame and deadline on the granting of a forbearance. The borrower must work out a way to get back on their feet within that time. If that doesn’t work, then they should consider a loan modification, which generally extends relief over a longer period of time. is the place to dream and discover your ideal home! Are you starting to get the itch to look for your first or next home, but don’t know where to start? You’ve come to the right place! Browse our real estate and lifestyle blog for home buying tips, mortgage guides, DIY ideas, interior design, lifestyle topics, general home inspiration, or just some homes fun. We are sure you can scratch that itch and find all the information and tools you need to help in your home search. Want to start looking at available real estate right now? Head to our home page and check out homes for sale or rent listings all over the country.
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Robert is a personal finance and business journalist with a bachelor's degree in journalism from Rowan University. He has more than 12 years experience in the online mortgage space. After purchasing a few homes himself over the years, Robert is determined to provide information that will help home buyers make it though the complex and ever-changing process of obtaining a mortgage.

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