What an Open Mortgage Offers
An open mortgage allows you to pay off all or part of your mortgage at any time without a prepayment penalty. This flexibility usually comes with a higher interest rate compared to a closed mortgage of the same term.
What a Closed Mortgage Offers
A closed mortgage typically has a lower interest rate but restricts how much extra you can pay down each year without triggering a penalty. Most buyers choose closed mortgages since they plan to hold the property long term.
Who Benefits From an Open Mortgage
Open mortgages make the most sense for buyers who expect to sell soon, receive a large lump sum like an inheritance or bonus, or are planning a major renovation that requires flexible access to funds.
- Expecting to sell within a short period
- Anticipating a large lump sum payment
- Needing maximum repayment flexibility
Prepayment Privileges on Closed Mortgages
Most closed mortgages still allow some prepayment flexibility each year, often a set percentage of the original principal, so you do not need a fully open mortgage just to make extra payments occasionally.
Making the Right Choice
For most buyers planning to stay in their home for the length of their term, a closed mortgage with reasonable prepayment privileges offers the best balance of rate and flexibility.
Frequently asked questions
- Are open mortgages always more expensive?
- Generally yes, the added flexibility usually comes with a higher interest rate.
- Can I switch from a closed to an open mortgage later?
- This usually requires breaking your current term, which may involve a penalty, so it is worth discussing with your broker first.
- Do closed mortgages allow any extra payments?
- Yes, most allow annual prepayment privileges up to a certain percentage of the original principal.