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Open vs Closed

Open vs closed mortgage: which should you choose in Canada?

A closed mortgage has a lower rate but limits how much extra you can pay each year; an open mortgage lets you pay off any amount — or the whole balance — at any time, for a higher rate. For the vast majority of buyers, a closed mortgage with solid prepayment privileges is the smarter choice. Here's when an open mortgage is genuinely worth it.

Closed = lower rateOpen = full flexibilityPrepayment privileges matterOpen suits short timelinesMost people choose closed
5-star rated| FSRA #13737| 5-min pre-qualification

Written by the Mortgage Squad Advisors Editorial Team · Reviewed by the Principal Broker, FSRA #13737 · Updated June 2026

The short answer

Choose a closed mortgage in almost every case — it carries a far lower rate and still lets you prepay 10–20% of the balance each year plus increase your payment, which is more flexibility than most people ever use. Choose an open mortgage only if you expect to pay off the entire balance soon (selling within months, a lump sum from a sale or inheritance arriving, or bridging between homes) — its higher rate buys the freedom to clear the mortgage anytime with no penalty. If you're unsure, a closed mortgage with strong prepayment privileges gives you most of the upside for much less.

At a glance

Which one is built for you?

A

Closed mortgage

The standard mortgage in Canada. Lowest available rate, in exchange for limits on how much you can prepay each year without a penalty.

Best for
  • Buyers keeping the mortgage for the full term
  • Anyone who wants the lowest possible rate
  • People whose extra payments fit within annual prepayment limits
  • First-time buyers and most renewals
B

Open mortgage

Pay any amount — including the full balance — at any time, with no penalty. You pay a noticeably higher rate for that freedom.

Best for
  • Selling the home within months
  • Expecting a large lump sum (sale, inheritance, bonus) soon
  • Bridging between two properties short-term
  • Wanting to break with zero penalty no matter what
Side by side

The full comparison

FactorClosed mortgageOpen mortgage
Interest rateLowest availableNoticeably higher (often 1%+ more)
Pay off in full anytime?Penalty applies (3 months' interest or IRD)Yes — no penalty, ever
Annual prepaymentTypically 10–20% of original balance + payment increaseUnlimited
Break penalty if you sell earlyCan be significant on a fixed closed termNone
Best for time horizonMedium to long (full term)Short (months)
AvailabilityFixed and variableUsually variable; shorter terms
Who picks itThe large majority of borrowersA small minority with a specific exit plan
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What 'closed' actually means — and why it's still flexible

The word 'closed' sounds restrictive, but a modern closed mortgage is more flexible than most people realize. 'Closed' simply means you can't pay off the entire balance early without a penalty. You can still make substantial extra payments through your prepayment privileges: most lenders let you pay an extra 10–20% of the original principal each year as a lump sum, and increase your regular payment by 10–20%, with no penalty at all.

For a typical household, that's far more prepayment room than they'll ever use. If you're putting an extra few thousand dollars a year against the mortgage, a closed term handles that comfortably while giving you the lowest rate on the market. That combination — low rate plus generous prepayment — is why closed mortgages dominate in Canada.

When an open mortgage is genuinely worth the higher rate

An open mortgage earns its higher rate in one situation: when you expect to pay off a large chunk — or all — of the balance soon, and a closed mortgage's penalty would cost more than the extra interest you'll pay on open. Classic cases:

• You're selling within a few months and don't want to port the mortgage. • A lump sum is on its way — proceeds from another property sale, an inheritance, or a large bonus — and you'll wipe the balance when it lands. • You need short-term financing between homes. (Though for that specific case, look at bridge financing, which is often purpose-built and cheaper for the gap.)

Because open rates are meaningfully higher, an open mortgage rarely makes sense for more than a few months. If your horizon is a year or more, the math almost always favours a closed mortgage — even accounting for a possible break penalty.

The penalty math that drives the decision

The whole open-vs-closed question really comes down to one comparison: the extra interest you'd pay on an open mortgage versus the penalty to break a closed one. Breaking a closed variable mortgage usually costs just three months' interest — small enough that a closed variable often beats open even for fairly short horizons. Breaking a closed fixed mortgage can cost the much larger Interest Rate Differential (IRD). Our prepayment penalty calculator estimates your specific penalty so you can compare it directly against the open-rate premium. Run both numbers before you decide — it's usually decisive.

Don't overlook prepayment privileges when you shop

If you go closed (and most people should), the prepayment privileges become one of the most important features to compare between lenders — and one of the most overlooked. A lender offering 20% + 20% privileges gives you dramatically more room to attack your principal than one offering 10% + 10%, and the difference can save you years of payments and thousands in interest if you ever come into extra cash. Also check how lump sums can be applied (anytime vs. only on the anniversary) and whether you can 'double up' regular payments. As an independent brokerage we compare these terms across dozens of lenders — the headline rate is only part of the story. See our guide to paying off your mortgage early for how to use them.

Your situation

Which is right for you?

You're buying your forever home

Usually: Closed

Long horizon, lowest rate, and prepayment privileges cover any extra payments you'll realistically make. The default choice for good reason.

Your home is listed and you'll sell in a few months

Usually: Open

The no-penalty payoff is worth the higher short-term rate. Or consider porting your existing mortgage to the next home.

An inheritance or sale proceeds arrive next year

Usually: Closed (variable)

A closed variable's small 3-month-interest penalty usually beats a full year at open rates. Compare with the penalty calculator.

You're bridging between two homes

Usually: Open / bridge

Look at purpose-built bridge financing for the gap — it's often cheaper and cleaner than a full open mortgage.

FAQ

Common questions, answered.

Don’t see yours? Ask Maya — instant answer, any time.

Can I pay off a closed mortgage early?
You can pay off part of it early through your annual prepayment privileges (typically 10–20% of the original balance per year, plus a payment increase) with no penalty. To pay off the entire balance early, you'd break the mortgage and pay a penalty — three months' interest on a variable, or the greater of that or IRD on a fixed. For most people the privileges are more than enough.
Why is an open mortgage rate so much higher?
Because the lender loses certainty. With an open mortgage you can repay the whole balance at any moment, so the lender can't count on earning interest over a set term. They price that flexibility in — open rates often run a full percentage point or more above closed, which is why open only pays off over short horizons.
Is a variable mortgage the same as an open mortgage?
No — they're different dimensions. Open vs closed is about whether you can repay in full without penalty. Fixed vs variable is about whether your rate is locked or moves with prime. You can have a closed variable, an open variable, or a closed fixed. Most Canadians have a closed mortgage that is either fixed or variable.
What are prepayment privileges?
They're the extra payments a closed mortgage lets you make penalty-free each year — usually a lump sum of 10–20% of the original principal, plus the ability to raise your regular payment by 10–20%. Comparing these between lenders matters as much as the rate if you plan to pay your mortgage down aggressively.
Should most people choose open or closed?
Closed, by a wide margin. The lower rate plus generous prepayment privileges give the large majority of borrowers all the flexibility they need at the best price. Open mortgages are a niche tool for people who will clear the balance within months.

Keep exploring

Fixed vs variablePenalty calculatorBest mortgage ratesBridge financingMortgage renewalRefinancingPorting your mortgagePay off your mortgage early
See all mortgage comparisons

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