The Difference between Open-ended and Closed-Ended Loans

By
Services for Real Estate Pros with Marketing with Kate

It occurred to me, as I was writing my blog post on Mortgage Accelerator Programs, that an explanation of the differences between Open Ended and Closed Ended Loan products might be helpful.

Open Ended Loans: are loans that allow you to put money in, (make a payment) and take money out (make charges or cash with-drawls).  These loans have credit limits that you cannot exceed without penalty.  They are flexible loan products that provide the consumer with options.   On an open ended line of credit you only pay interest if a balance is kept at the end of the statement period.  One of the benefits of an open ended line of credit is that the credit limit can be increased if the card is managed responsibly!

Examples:  Credit Cards such as Visa, Discover, American Express and Sears.  The cards allow you to charge up to a certain limit.  Lines of Credit such as HELOC (Home Equity Lines of Credit)

Closed Ended Loans:  These are loans that are set from the beginning of the loan.  You can make payments into, but cannot take money out.   The money is loaned at a set amount, and the consumer agrees to make payments towards the principal and interest.  Also known as installment loans, you can make additional principal payments and pay them off early, but once paid you do not have access to the equity in the property that you have purchased.  Typically, the early years of the loan is primarily interest and principal is paid towards the end of the loan period.The only way to access equity is to sell the property, or to get a new loan i.e. refinance.

Examples:  Car Loans, 30 Year Mortgage, 15 Year Mortgage, Adjustable Rate Mortgage, 5/1 ARMs, Dell Computer Loans etc.

Understanding the difference between Open Ended Loans and Closed Ended Loans is critical in understanding the power of Money Merge Accounts or Australian Mortgages. 

The Australian Mortgage uses an open ended HELOC as a primary mortgage tool which allows the homeowner to make deposits (payments) into  and draw money out as necessary.  The net effect is cancelled interest and a quicker repayment of the principal balance IF the consumer spends less than them make each month.

The Money Merge Account does the same thing, but creates a system where the Open Ended Line of Credit works in conjunction with the Close Ended Mortgage.  Periodic transfers of equity from the Open Ended Line of Credit take place into the Close Ended Mortgage, creating a systematic interest cancellation system that can be quite effective in helping consumers pay down debt and pay off the mortgage early.

 

---------------------------------------------------------------------------------------------------------------

Kate Bourland is a Mortgage Planner located in Redding, California. Her focus is teaching clients how to manage debt and create wealth thru Real Estate. First Time Home Buyers, Debt Consolidation, Refinancing, Money Merge Accounts, Mortgage Acceleration, Reverse Mortgages, Rehab Loans (Great for buying foreclosues)    She creates customized plans for each client that are focused on the clients goals and needs.  No matter what your goals, Kate is committed to providing solid professional planning to help you achieve those goals.  Contact Kate by e-mail or by phone at 530-244-4345.

© 2007 Kate Bourland, all rights reserved.

 

Posted by

I am Kate Bourland. I help people like you get out of debt. Debt Settlement, Mortgage Acceleration, and practical suggestions for eliminating debt. Call for a Free Debt Evaluation.



FacebookTwitterLinked InSkypeWordpress Social Media Butterflies
close

This entry hasn't been re-blogged:

Re-Blogged By Re-Blogged At
Tags:
mortgage accelerator
u1st financial
australian mortgage
open ended loan
closed ended loan

Post a Comment
Spam prevention
Spam prevention
Show All Comments
Anonymous
James

OK lets say I got a HELOC ($10,000.00) I then want to send $5,000.00 to the bank to pay down the mortgage. In order to be effective the bank would first have to accept the payment, and put it towards the principal, right? Won't most banks balk at that? "A $5,000.00 principal payment every few months? Or is there some compelling reason they have to accept the payment because it is being paid from the HELOC?

REGARDS: James

Jul 29, 2008 08:51 AM #4
Anonymous
Anonymous

There is a company that approached me to 1: get this loan with a $3,500 fee for the optimization software.  2: it's a multilevel marketing system after an initial $175 fee, you get money back when you sign up others.  This sounds odd to me.  Do you think they're legitimate or simply another company trying to keep me and my money parted?

Jul 30, 2008 02:46 PM #5
Anonymous
Anonymous

There is a company that approached me to 1: get this loan with a $3,500 fee for the optimization software.  2: it's a multilevel marketing system after an initial $175 fee, you get money back when you sign up others.  This sounds odd to me.  Do you think they're legitimate or simply another company trying to keep me and my money parted?

Jul 30, 2008 02:46 PM #6
Anonymous
Edward

I am very intreged by this topic. there is aguy on early morning Tv hawking a book on how to lower or eliminate the principle of a closed loan. Is the system James mentions above a way to do this?

 

Thank you

Oct 22, 2008 03:23 AM #7
Anonymous
Kathy

It may be legitimate but indeed there is something very not right about it. It may work overseas but the US has different bank standards. And I don't even know that it does work...where are the numbers?

The best way to pay down your mortage is to pay a little more each year or each month to the bank. I pay 10% each payment and at this small amount - I will be saving 7 years and $90,000.

There is an expression - if its too good to be true...then it is.

 

Feb 07, 2009 01:59 AM #8
Rainmaker
291,124
Kate Bourland
Marketing with Kate - Redding, CA
Onlilne Marketing Mobile Marketing

Kathy, actually it has nothing to do with banking standards.  It's about how you manage your money.  It works, and it works extremely well.  This system works to pay off ALL kinds of debt, not just mortgages.  It's just about understanding how to use the tools that are available to you.

If you would like an analysis using your numbers contact me - I'll be happy to complete an analysis to show you how it works - no obligation or cost to you.   An extra 10% each month is a good strategy - it's doing the same thing, cancelling interest but just more slowly.

There are three different strategies:

1 - the do it yourself method hawked via the informercial

2.  low cost software that will only show you how to acellerate your mortgage

3.  United First Financials- Money Merge Software that provides a complete financial GPS system to help you eliminate all kinds of debt,, not just your mortgage.  It's a complete financial planning software system that is second to none!

It really depends on how quickly you want to take charge of your financial future.

As I said, if you want an analysis - feel free to give me a call.

 

 

Feb 07, 2009 03:00 AM #9
Anonymous
Lauren

Are banks in CA doing this now for those who ask????

Apr 23, 2009 04:38 AM #11
Rainmaker
291,124
Kate Bourland
Marketing with Kate - Redding, CA
Onlilne Marketing Mobile Marketing

Lauren, doing what now?  Open ended loans?  A credit card a personal line of credit or a home equity line of credit are all considered to be open ended.  Home Equity lines of credit will only be given if you have equity in your home.  If you have none you will need to pursue a personal line of credit.  Feel free to call me to discuss your individual situation.

Apr 23, 2009 07:28 AM #12
Anonymous
Nancy Palmetto

We have 2 mortgages, 1 main residence, 2nd vacation home.  If we have $50,000 that could be put towards these how would it benefit us?

1st home balance $120,000...Planning to sell to downsize to get ready for retirement.

2nd mortgage bal.  $280,000/30yr fix 5.5

Which one would we put this towards & why?  What is the difference in putting it in a low interest CD & paying it towards a mortgage.

Thank you.

Apr 29, 2009 06:24 AM #13
Anonymous
bs

This stuff kills me. If its so important and yall want to help people, why keep this a secret. I hate the way this country works. If no one knew about chicken noodle soup, someone would try to sell its "secret". Its about who learns stuff first. And if you learn before several other people you can sell a idea that is known already for money. Its sick.

Jun 28, 2009 12:30 AM #14
Rainmaker
291,124
Kate Bourland
Marketing with Kate - Redding, CA
Onlilne Marketing Mobile Marketing

Nancy, I don't have enough information to complete an analysis.  If you want to email me directly or call me and I'll be happy to provide the answers you need.

bs - I considered deleting your comment.  There is nothing wrong will selling information that will benefit someone's life.  There is no secret, just an excellent system that will help eliminate debt and build wealth.  Time is money.  If you can shorten the learning or implementation time by leveraging other peoples knowledge - that has major value. 

Jun 28, 2009 07:08 PM #15
Anonymous
Stan

KATE,

I am a first time home buyer.  How can an open ended loan help me if I wanted a  $250,000.00 Loan?

 

Jun 30, 2009 10:37 AM #16
Anonymous
Anonymous

We have no debt, other than our home loan balance of $85,000. We will be relocating in a year. I am interested in a open ended mortgage to finance our childrens' college education. What kind of interest rates are available for these types of loans? We have excellent credit. I am a veteran, so a VA mortgage is available to us. GPV

Jul 07, 2009 12:22 AM #17
Anonymous
Julie Fickle

I've been hearing about this idea for at least 6 or 7 years.  I wanted to be involved in helping my family pay down their mortgages with the Open ended account.  I never got involved because of some family circumstances requiring that I care full time for both parents.  Now that my father has passed away recently - I feel I can become more involved.  But heree is a question I have right now.

My folks bought the house that my mom alone now has (we've moved in to help and care for her needs)  Mom is better at budgeting and spending and now that my Dad is gone, we need to take a look at what her option are - I'd be glad to personally email you with particulars so we can get an idea as to whether or not the Australian type loan would work for her.

 

Thanks for such  a wonderful blog spot to keep us informed.

Jul 01, 2010 01:57 PM #18
Anonymous
Jennie

Thanks for the definitions of open ended and closed ended loans.  I have been given three different opinions and I did not feel safe with any of them.  You are a big help.

Nov 08, 2011 08:19 AM #19
Anonymous
ellasmith584

hanks for telling us about open ended and closed ended loans....it is a really good blog..

and thanks for sharing..

<a href="http://www.mripleylaw.com/practice-areas/loan-modifications attorney"></a>

Jul 10, 2013 05:12 PM #20
Anonymous
ellasmith584

 

hanks for telling us about open ended and closed ended loans....it is a really good blog..

and thanks for sharing..

<a href="http://www.mripleylaw.com/practice-areas/loan-modifications attorney">loan-modifications attorney</a>

Jul 10, 2013 05:14 PM #21
Rainer
18,604
Courtney Graley
Engineer

Thanks for the information. It is depending on the requirement, an individual or business may take out a form of credit that is either open or closed ended. While closed-end credit includes loan, a line of credit is a type of open-end credit. https://www.paisa.co/car-loan/fi/icici-bank2

Sep 27, 2017 04:24 AM #22
Rainer
1,200
philips hugess
Always Money - Montgomery, AL
Bad Guy with Good Thoughts

Thank you for taking the time to provide us with your valuable information. 

Regards,

Always Money

Dec 19, 2017 04:12 AM #23
Anonymous
Amy

Personal loans can be one of the best ways to get back on track financially. If you’re considering making a large purchase or you’re in need of some extra cash, Loanry may help you find a lender who offers a personal loan to give you the financial support you need. Get personal loan online

Nov 09, 2018 06:41 AM #25
Post a Comment
Spam prevention
Show All Comments

What's the reason you're reporting this blog entry?

Are you sure you want to report this blog entry as spam?

Rainmaker
291,124

Kate Bourland

Onlilne Marketing Mobile Marketing
Ask me a question
*
*
*
*
Spam prevention

Additional Information