discounts on OPEN variable rate mortgages

[gomyone]

..what kind of discount could I expect on an open variable mortgage if I had a perfect credit rating and a long relationship with a particular lender (BMO)? It would seem to me that discounts of 100/150bps off prime would be likely for closed variable mortgages but I don't see what the incentive would be for a lender to give as great a discount on an open mortgage that carries higher pre-payment risk?

[houska]

Scotiabank will give you P-0.75 open variable within a Total Equity Plan. They also offered me P-0.90 variable 5 year closed. I am also puzzled by the spread - I would have expected open variable to be closer to HELOC (P-0) than to 5 year closed - but was certaintly a good choice for me.

[ericw]

p-.5 to p-.75 is what you should expect, depending on the relationship and the amount

[FrugalTrader]

..what kind of discount could I expect on an open variable mortgage if I had a perfect credit rating and a long relationship with a particular lender (BMO)? It would seem to me that discounts of 100/150bps off prime would be likely for closed variable mortgages but I don't see what the incentive would be for a lender to give as great a discount on an open mortgage that carries higher pre-payment risk?

If you have good credit and income, BMO should be able to offer you a 3 year open variable for prime - 0.85.

[gomyone]

thanks for responses. However, to the poster who mentioned that BMO would offer a 3 year open variable at P-0.85 - I have never understood what a "3 yr term" on an open variable mortgage means - with an open mortgage - shouldn't there be no term as the balance can be paid off anytime?

The reason I am asking is that my mortgage comes for renewal in Sept - however I am in the process of selling my home and will be closing on a new home in November. I'd rather payoff my mortgage on my old house and then negotiate a new mortgage for the new house in November - that is why I'd like to renew with an open mortgage.....thoughts?

[FrugalTrader]

thanks for responses. However, to the poster who mentioned that BMO would offer a 3 year open variable at P-0.85 - I have never understood what a "3 yr term" on an open variable mortgage means - with an open mortgage - shouldn't there be no term as the balance can be paid off anytime?

The reason I am asking is that my mortgage comes for renewal in Sept - however I am in the process of selling my home and will be closing on a new home in November. I'd rather payoff my mortgage on my old house and then negotiate a new mortgage for the new house in November - that is why I'd like to renew with an open mortgage.....thoughts?

The 3 yr term means the "mortgage contract" and rate that you're getting will expire in 3 yrs. At that time, you'll have to get another mortgage or sign onto another 3 yr term (if it still exists).

Do you plan on paying off your new house in the next few years? If not, then why are you going open? Open mortgage gives you the privilege of no restrictions as to how much you pay down your mortgage during the term. On top of that, an open mortgage will enable you to change mortgages with very little penalty within the term indicated.

[gomyone]

...thanks - Its just that the whole notion of a "term" when you have an open variable rate mortgage seems counter intuitive. Seems to me, if its a variable rate mortgage then the rate is floating and not fixed so its just the payment amt that's reset after 3 yrs right? (If rates change within that 3 yr term its just the amts attributed to principal/interest that changes right?).

The reason why I'm going open is that I plan on paying off my entire mortgage when my current house sells (probably Oct/November). Since my new mortgage is going to be larger than my old one, I'd rather re-negotiate for an entirely new mortgage since I would likely get a better overall rate than if I blended in my current mortgage - makes sense?