An open mortgage lets you repay, refinance or pay it off entirely at any time with no penalty, but at a higher rate. A closed mortgage gives you a lower rate with limits on how much extra you can pay and a penalty for breaking early. Compare rates on our live rate tracker and model prepayments in our mortgage calculators.
An open mortgage can be paid off anytime with no penalty but has a higher rate — good if you expect a lump sum or plan to sell soon. A closed mortgage has a lower rate but caps prepayments and charges a penalty to break early. Most Canadians choose closed for the savings and use its prepayment privileges. This is not financial advice.
An open mortgage gives you complete freedom to repay any amount, refinance, or discharge the mortgage in full at any point during the term without a prepayment penalty. That flexibility is not free — lenders charge a noticeably higher interest rate on open mortgages to compensate for the risk that you leave early. Open terms are often short, and they are typically taken by borrowers who know they will need to pay off or restructure the loan soon and do not want to be locked in.
A closed mortgage is the standard product most Canadians choose. It carries a lower interest rate than an open mortgage, which is why it saves money over a full term. The trade-off is that you cannot freely pay it off: extra payments are capped by your prepayment privileges, and breaking the mortgage before maturity triggers a penalty. Closed mortgages come in both fixed and variable versions, and their lower rate is the reason they dominate the market despite the restrictions.
| Feature | Open | Closed |
|---|---|---|
| Interest rate | Higher | Lower |
| Pay off anytime | Yes, no penalty | No (penalty applies) |
| Prepayment limits | None | Capped each year |
| Break penalty | None | 3 months' interest or IRD |
The core trade-off is flexibility versus rate. Open costs more but sets you free; closed saves money but ties you down. On a closed fixed mortgage the break penalty is the higher of three months' interest or the interest rate differential, while a closed variable is usually about three months' interest.
Even a closed mortgage lets you pay down principal faster within limits, through prepayment privileges. Most lenders let you prepay a percentage of the original principal each year — commonly 10% to 20% — and increase your regular payment by a similar percentage, both without penalty. Used consistently, these privileges can shave years off your amortization. If you want to pay down faster, also look at accelerated bi-weekly payments, which add roughly one extra monthly payment a year.
Choose open only when the flexibility genuinely outweighs the higher rate. Good reasons include expecting a large lump sum (a bonus, inheritance or property sale) that will pay off the balance, planning to sell the home within months, or bridging a short gap between properties. For almost everyone else who intends to hold the mortgage for the full term, a closed mortgage's lower rate wins — and its prepayment privileges usually provide enough flexibility. Every mortgage, open or closed, must still pass the stress test.
An open mortgage can be repaid, refinanced or paid off in full at any time with no prepayment penalty, but it carries a higher interest rate. A closed mortgage has a lower rate but limits how much extra you can pay each year and charges a penalty if you break it early.
An open mortgage suits you if you expect a lump sum soon, plan to sell the home in the near term, or want the freedom to pay off the balance without penalty. The higher rate is the cost of that flexibility, so it is best for short holding periods.
Closed mortgages usually let you prepay a set percentage of the original principal each year — commonly 10% to 20% — and increase your regular payment by a similar percentage, all without penalty. These privileges let you pay down principal faster within the closed mortgage's limits.
For a closed variable mortgage the penalty is usually about three months' interest. For a closed fixed mortgage it is the higher of three months' interest or the interest rate differential, which can be much larger. Open mortgages have no such penalty.
The rate is almost always lower on a closed mortgage, so if you keep it for the full term it is cheaper. But if you break it early, the penalty can wipe out those savings. Whether closed is truly cheaper depends on how likely you are to pay it off or move before the term ends.