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Short term mortgages are considered three years or less, with 6-month terms being one of the shortest you can get.
People with 6-month open mortgages typically only require a short-term mortgage solution, and they usually intend to renew into a longer mortgage term afterwards. And since it’s an open mortgage, a borrower can repay any amount of the loan at any time without penalty.
But there’s a price to be paid for that convenience. The 6-month open mortgage terms are priced significantly higher than closed short-term mortgages, such as 1- and 2-year terms.
A price premium is placed on open mortgage terms largely due to the absence of a prepayment penalty. Because borrowers can repay the loan at any time, the loan is inherently riskier for lenders to fund. This is because they can’t know if they’ll receive the full interest cost over the term, or if the loan will be repaid quickly. That creates what’s known in the industry as “prepayment risk,” meaning the lender earns less profit at a given rate, versus a closed mortgage.
