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Insights & advice

Open vs. closed mortgages

April 2022 – 15 min read

Key takeaways

  • An open mortgage gives you greater flexibility to repay your mortgage than a closed mortgage

  • Open mortgages usually have higher interest rates because they offer this flexibility

  • There are situations where you should consider each type of mortgage

  • There is a significant cost to breaking a closed mortgage

  • There is no difference to how you qualify for an open or closed mortgage

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What’s the difference between an open mortgage and a closed mortgage?

With an open mortgage, you can increase your payments by any amount, repay in full, refinance or renegotiate any time during the mortgage term without paying a prepayment charge. With a closed mortgage, you are limited in the amount you can increase your payments and you can’t repay in full, refinance or renegotiate without paying a prepayment charge. 

Here are some other comparisons:

Type of mortgage
Open mortgage
Closed mortgage
How it works

It can be repaid in part/full at any time without prepayment charges. 

It can be converted to any other term, at any time, without a prepayment charge.

If you sell your home, get a substantial salary bonus or commission, inheritance, or another type of financial windfall, you have the flexibility to use that money to pay off your mortgage early and pay less interest.

You’re bound by the terms and conditions of the mortgage for the entire term.

You only have flexibility to increase payments and/or make lump sum payments within certain limits according to the features of the particular mortgage. 

Interest rates
Often higher than closed mortgages due to prepayment flexibility
Usually lower than an open mortgage. In most cases the interest savings of a closed mortgage outweighs the flexibility of an open mortgage.
When you should consider
  • You’re planning to sell your property in the short term
  • You expect to pay off some/all of your mortgage in the near future
  • You plan to keep your property for at least a year
  • You want a fixed mortgage payment over the long term to help with budgeting
Penalty for breaking the mortgage term early
None
Usually the greater of 3 months interest or the interest rate differential (IRD), a formula used by the lender that you can find in your mortgage contract
How to qualify
Pass the mortgage stress test
Pass the mortgage stress test

What’s next?

Now that you understand more about open and closed mortgages, your advisor can connect you with a credit planning consultant to:

  • Discuss what type of mortgage best meets your needs

  • Confirm the size of mortgage you can afford

  • Check for a competitive mortgage interest rate

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The information provided is based on current laws, regulations and other rules applicable to Canadian residents. It is accurate to the best of our knowledge as of the date of publication. Rules and their interpretation may change, affecting the accuracy of the information. The information provided is general in nature, and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors.