2 Advantages of a Closed-End Loan

A closed end loan is a loan that cannot be paid off in full before the maturity date of the loan. Though at first glance it may not seem as though there are any advantages to this kind of loan, there are at least two different advantages from the perspective of the lender. This is why these types of mortgages are offered in both fixed and variable interest rates--to help draw potential borrowers in to have them file a loan application.

Lenders know exactly how much will be paid and earned over the course of the loan because borrowers cannot pay it off early.  A closed end loan simplifies the record keeping process for the lender, since they do not have to bother with the recalculations. For loans that are paid off early, lenders have to recalculate interest earned, based on how early the pay off was. While it saves borrowers money to pay off loans early, it doesn't benefit the lender.

If the borrower defaults on the loan, the lender or mortgage holder will not have to go through much trouble to regain possession of the home. It makes the closed end mortgage very easy for the loan holder to manage.

 


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