When does the 'Open Rate Premium' become worth it for you?
Open rates cost ~2% more (roughly $10,000/year on $500K) — only worth it if you expect to sell, refinance, or pay off within 12 months.
| Scenario | Cost Details | Comments |
|---|---|---|
| 2% Premium (Closed) | 2% of $500,000 is $10,000/year, but this is a simplified estimate; actual premiums vary by lender and product | |
| Early Break of 5-year Term (Year 2) | Penalty depends on IRD or 3 months interest; for a street-card coupon on $500k, IRD can land in the low-to-mid five figures depending on the comparison rate, remaining term, and lender formula | Break cost scenario for closed products. The coupon is the live card at /data/rates.json. |
| Open Mortgage | No penalty cost | Open mortgages have no penalties but higher interest rates; 'mathematically superior within 18 months' is a generalization and depends on rate differential and break timing |
Primary sources
Primary sources cited by the Ratellow Research Team. Editorial standards · Correction policy
Related Questions
What is the technical difference between a VRM and an ARM?
A VRM (Variable Rate Mortgage) has a variable payment that can change, but the interest rate varies with prime rate movements and payments may remain fixed until a trigger rate is reached, after which negative amortization can occur.
How do I calculate the 2026 'Trigger Rate' for you?
The Trigger Rate is the point where the monthly interest equals the monthly payment.
Why is the variable-to-fixed conversion rule so critical?
Most lenders allow borrowers to convert to a fixed rate mid-term for free, provided the new term is equal to or longer than the remaining variable term.
How do 2024 reforms impact insured variable products?
Insured variables on homes up to $1.5M now allow for 30-year amortizations (for FTHB/New Builds).