Open vs Closed Mortgages

You may have heard about “open” or “closed” mortgages, and are wondering what the difference is.
Open mortgages allow the borrower to pre-pay some or all of the mortgage, renew or refinance at any time before maturity without penalties. This also means that you can switch lenders at any time. The catch is that this flexibility to pay back the mortgage whenever you like usually comes with a higher interest rate. An open mortgage can make sense for those who know they are receiving a large sum such as an inheritance and want to put this money onto their mortgage, or are intending to sell their home in the near future.

A closed mortgage, on the other hand, typically allows you to prepay a limited amount each year without a penalty, usually 15 to 25% of the original principal. This type of mortgage may also include the ability to increase the size of your regular payments, up to double in many cases.

Closed mortgages typically have a better rate, although it pays to understand the pre-payment provisions in the fine print. Looking to pay off your debt early but have a closed mortgage? This type of mortgage may be renegotiated or refinanced in most cases with the payment of a penalty.

The details can vary from lender to lender, and so it makes sense to talk to a mortgage advisor.