Closed mortgages: lower rate, less freedom
A closed mortgage locks in your rate and term with a meaningfully lower rate than an open mortgage. In exchange, you agree to limits on how much extra you can pay each year and a penalty if you break the contract early.
Closed does not mean rigid. Most closed mortgages include annual prepayment privileges — commonly 10% to 20% of the original balance, plus the option to increase your regular payment — which is plenty for the vast majority of borrowers.
Open mortgages: full freedom, higher rate
An open mortgage can be repaid in full or in part at any time without penalty. That flexibility comes at a price: open rates are significantly higher than closed rates for the same term.
The premium is only worth paying if you are confident you will need to pay off or substantially prepay the mortgage soon.
When an open mortgage makes sense
For specific, short-term situations, the higher rate buys real value.
- You are about to sell the home or expect a large lump sum (an inheritance, a bonus, a property sale).
- You are in a short bridge period and want zero penalty risk.
- You plan to pay off the mortgage entirely within the next several months.
The bottom line
For most buyers and renewers, a closed mortgage with solid prepayment privileges delivers the lower rate and enough flexibility. Reach for an open mortgage only when you have a concrete, near-term reason to need full freedom.