1 Mortgage Details
📊 Open vs. Closed Mortgage Comparison▼
| Feature | Open Mortgage | Closed Mortgage |
|---|---|---|
| Prepayment Penalty | $0 (none) | 3 months' interest or IRD |
| Interest Rate | Higher (+1% to +3%) | Lower (best rates) |
| Prepay Any Amount | ✅ Yes, anytime | Limited to annual privileges |
| Pay Off Entire Balance | ✅ Yes, anytime | ❌ Only at term end (else penalty) |
| Refinance / Switch Lenders | ✅ No penalty | ❌ Penalty applies |
| Convert to Other Type | ✅ Open → Closed allowed | ❌ Cannot convert without penalty |
| Best For | Short-term, uncertain plans | Long-term, stable plans |
💰 Closed Mortgage Penalty Formulas▼
Variable Rate Closed Mortgage
Penalty is always 3 months' interest on the outstanding balance.
Example: $400,000 balance at 5.50%
Fixed Rate Closed Mortgage
Penalty is the GREATER of 3 months' interest or the Interest Rate Differential (IRD).
Example: $400,000 balance at 5.50%, current rate 4.00%, 24 months remaining
When Current Rates Are Higher
If the current rate is HIGHER than your rate, the IRD becomes negative and is treated as $0. In that case, only the 3 months' interest penalty applies.
🎯 When to Choose Open vs. Closed▼
Choose an OPEN Mortgage If:
- You plan to sell your home within the next 12 months
- You expect to break the mortgage or refinance soon
- You need maximum flexibility for lump-sum payments
- You're uncertain about your long-term plans
- You're receiving a large windfall and want to pay off the balance
Choose a CLOSED Mortgage If:
- You plan to keep the mortgage for the full term
- You want the lowest possible interest rate
- You don't need to break the contract early
- You can work within the annual prepayment privileges
- You're refinancing from another closed mortgage
The Trade-Off
Open mortgages have no penalty but charge higher interest rates (typically 1-3% more). Closed mortgages offer the lowest rates but have a prepayment penalty if broken early. The right choice depends on how long you plan to keep the mortgage and whether you're likely to break it.
2 Frequently Asked Questions
What is an open mortgage?
An open mortgage allows you to prepay any amount at any time without penalty, including paying off the entire balance. However, open mortgages have higher interest rates (typically 1-3% higher than closed mortgages).
What is a closed mortgage?
A closed mortgage has a fixed term with lower interest rates than open mortgages. You can make prepayments within annual limits (typically 10-20%), but breaking the contract early triggers a prepayment penalty.
How much is the penalty for breaking a closed mortgage?
Variable rate closed: 3 months' interest. Fixed rate closed: greater of 3 months' interest or Interest Rate Differential (IRD).
When should I choose open vs. closed?
Choose open if you plan to sell soon, expect to break the mortgage, or need maximum flexibility. Choose closed if you plan to keep the mortgage for the full term and want the lowest rate.
Can I convert open to closed?
Yes. Most lenders allow you to convert an open mortgage to a closed mortgage at any time without penalty, typically when you lock into a fixed or variable rate.
Why are open mortgage rates higher?
Open mortgages charge higher rates because the lender takes on more risk — the borrower can leave or pay off the mortgage at any time without compensating the lender.
3 Official Resources
Verify all calculations with your lender before making any decisions.
⚠️This tool is for information purpose only. We do not guarantee any claim.
It is made based on data publicaly available on official website of concerned department.
Last Updated: March 2026 | Official Determination Required