Open Mortgages

• Open mortgages refer to any mortgage that allows subsequent borrowing after the first mortgage is taken, with protection given to the bondholders each time refinancing takes place. For example, the original mortgage contract may allow for subsequent borrowing up to a certain percentage of the value of the property being mortgaged. The borrow may then incur more debt up to say 70 percent or 80 percent of the value of their property.
  
  

Open-Ended Mortgages

• Open-ended mortgages are a subcategory of open mortgages, although they are decidedly more attractive for the borrower. While the open mortgage sets a limit as to the amount that can be borrowed on top of the original mortgage, open-ended mortgages can issue unlimited bonds under the umbrella of the original mortgage. This is a less attractive option to lenders as they do not receive any additional security or collateral for successive bonds issued.
  
  

Limited Open-Ended Mortgages

• One manner in which the potential risk of the lender can be lessened is to "limit" the open-ended mortgage. This form of mortgage usually contains the same restrictions as the open-end mortgage. However, limited open-ended mortgages cap the amount of original mortgage bonds that can be issued. Furthermore, these mortgages usually stipulate that proceeds for new bonds issued must be used to repay older outstanding bonds.
  
  

Advantages and Disadvantages

• The major advantage of open-ended mortgages is that they act essentially like a revolving credit line. As long as some of the money is paid off, more can be borrowed. The downside for the borrower is that with every successive bond that is borrowed, there is an increase in the interest rate on the borrowed capital. In this manner, the lenders insure themselves against progressively increasing risk.