Open vs. Closed Mortgages (Prepayment)

Open Mortgage

Borrowers can make additional mortgage payments without incurring penalties, including paying the entire amount of the mortgage before the end of the term. 

Since there is no penalty for prepaying the mortgage, an open mortgage typically allows for more flexibility when circumstances change (like selling your house and needing to pay off the mortgage before the maturity date).

Open mortgages usually come with a higher interest rate, and shorter-term lengths, particularly with fixed interest rates. 

Closed Mortgage

Mortgages closed to prepayment have restrictions on the amount borrowers can pay in addition to the regular payment amount. When you pay down your mortgage beyond any prepayment privileges allowed, or if you want to prepay your entire mortgage balance, penalties will be applied.   

Closed mortgages are advantageous to borrowers that do not believe they will be selling their property during the term they select and will not pay the mortgage down by more than the prepayment privileges allowed in the mortgage (if any).  

Closed mortgages typically have lower interest rates than open mortgages for the same term.

Always consult your mortgage disclosure and/or your mortgage professional when deciding what product is right for you.  Review your mortgage disclosure/ documentation to understand the terms and conditions that relate to your mortgage.