Open vs. Closed Mortgage in Canada (2026): What's the Difference?
Open mortgages let you pay off anytime with no penalty but cost more; closed mortgages are cheaper but limit prepayment. Here's how to choose the right one in Canada.
Open mortgages let you pay off anytime with no penalty but cost more; closed mortgages are cheaper but limit prepayment. Here's how to choose the right one in Canada.
When you arrange a mortgage you'll choose between "open" and "closed." It's an easy decision once you understand the trade-off: open mortgages buy you flexibility at a higher rate, while closed mortgages give you a lower rate in exchange for limits on prepayment. Here's how to pick.
The short answer
A closed mortgage has a lower interest rate but limits how much you can prepay and charges a penalty if you break it early — it's the right choice for most people. An open mortgage lets you pay it off in full anytime with no penalty, but carries a noticeably higher rate — worth it only when you expect to repay or break the mortgage very soon. See mortgage options.
Closed mortgages
- Lower rate — the cheapest borrowing for the term.
- Prepayment limits — you can usually prepay a set amount each year (often 15–20%) penalty-free, but no more.
- Break penalty — paying off early triggers a penalty (three months' interest, or the IRD on fixed). See how penalties are calculated.
- Best for: almost everyone keeping the mortgage for the term.
Open mortgages
- Full flexibility — repay any amount, anytime, with no penalty.
- Higher rate — you pay a premium for that freedom.
- Best for: short, specific situations — you're about to sell, expecting a large lump sum (an inheritance, a bonus, proceeds from another sale), or only need financing for a few months.
How to choose
Ask one question: am I likely to pay this off or break it soon? If no — which is true for most buyers — a closed mortgage's lower rate saves you money, and your annual prepayment privileges give you enough flexibility. If yes — you're selling shortly or a windfall is coming — the open mortgage's no-penalty freedom can be worth the higher rate. For many "in-between" cases, a closed mortgage with strong prepayment privileges, or a shorter closed term, is the sweet spot.
Don't overpay for flexibility you won't use
The most common mistake is choosing open "just in case." The rate premium is real and usually outweighs the value of flexibility you never use — especially since closed mortgages already allow generous penalty-free prepayments. If your only worry is breaking early to chase a better rate, compare that scenario in should you break your mortgage to refinance. And remember there's never a penalty at renewal.
Frequently asked questions
What's the difference between an open and closed mortgage?
An open mortgage can be repaid in full anytime with no penalty but has a higher rate; a closed mortgage has a lower rate but limits prepayment and charges a penalty to break early.
Is an open or closed mortgage better?
Closed is better for most people because of the lower rate. Open makes sense only if you expect to repay or break the mortgage very soon, such as before selling.
Can I make extra payments on a closed mortgage?
Yes — most closed mortgages allow penalty-free prepayments up to a set percentage (commonly 15–20%) of the original amount each year.
Does a closed mortgage have a penalty at renewal?
No. At the end of your term you can pay it off, switch lenders, or renew with no penalty — penalties only apply when you break the mortgage mid-term.
Not sure which to choose? Talk to us — we'll match an open or closed mortgage to your real timeline so you don't overpay for unused flexibility.
Mortgage content produced by Mortgage Squad Advisors' team of FSRA-licensed mortgage advisors and reviewed under the supervision of the brokerage's Principal Broker (FSRA Brokerage #13737) before publication.