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