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The Great-West Life Assurance Company, London Life Insurance Company and The Canada Life Assurance Company have become one company – The Canada Life Assurance Company. Discover the new Canada Life

The Great-West Life Assurance Company, London Life Insurance Company and The Canada Life Assurance Company have become one company – The Canada Life Assurance Company. Discover the new Canada Life

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Freedom 55 Financial is a division of The Canada Life Assurance Company and the information you requested can be found here.

Open vs. closed mortgages

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.

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. 

Open 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.

Interest rates 

Interest rates are often higher than closed mortgages due to prepayment flexibility.

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

Penalty for breaking the mortgage term early 

None

How to qualify 

Pass the mortgage stress test.

Closed mortgage 

How it works 

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 

Interest rates are 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 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 

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.

What's next?

Now that you understand more about open and closed mortgages, you can contact an advisor 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

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.

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