Open vs Closed Mortgage: Which Should You Choose?

When you arrange a mortgage in Canada, one of the first choices you'll face is open vs closed. It sounds technical, but the difference is simple: it's about how much freedom you have to pay off your loan early — and how much that freedom costs. This guide breaks down both options so you can pick the one that fits your plans.

Key takeaways

• A closed mortgage has a lower rate but limits how much you can prepay; breaking it early triggers a penalty.
• An open mortgage lets you repay any amount anytime without penalty, but charges a noticeably higher rate.
• Most Canadian homeowners choose closed mortgages because the rate savings are significant.
• An open mortgage suits short-term situations — selling soon, expecting a windfall, or an uncertain timeline.
• HOMEH gives eligible buyers the industry's highest Cashback Rebate, regardless of the mortgage you choose. Sellers list for 1%, or free when they also buy with HOMEH within 6 months, or $395 + HST with a Mere Posting.

The core difference

The split between open and closed mortgages comes down to one thing: flexibility to pay down your loan early. A closed mortgage locks in a term with limited prepayment rights in exchange for a lower rate. An open mortgage lets you repay any amount — even the whole balance — at any time without a penalty, but you pay a premium on the interest rate for that freedom.

Both are simply features layered onto a regular mortgage. If you're still getting comfortable with the basics, start with our plain-English guide to how mortgages work in Canada.

Closed mortgages explained

A closed mortgage is the most common choice in Canada. You agree to a term — often one to five years — at a lower rate. In return, your lender limits how much extra you can pay each year, typically through prepayment privileges (for example, an annual lump-sum allowance and the ability to increase your regular payment by a set percentage).

The trade-off: if you break the mortgage before the term ends — by selling, refinancing, or paying it off entirely — you'll face a prepayment charge. These charges can be significant, so understand how mortgage penalties work before signing.

Closed doesn't mean no prepayments

Most closed mortgages still let you make annual lump-sum payments and increase your regular payment within set limits. "Closed" means there are limits — not that prepayments are forbidden.

Open mortgages explained

An open mortgage gives you complete freedom to repay any amount at any time — including the full balance — with no prepayment penalty. That flexibility is valuable in specific situations, but it comes at a cost: open-mortgage rates are meaningfully higher than closed rates for the same term.

For most homeowners staying put for years, that rate premium outweighs the flexibility. Open mortgages shine when your timeline is short or uncertain.

Open vs closed at a glance

Run the numbers before you decide

The right choice often comes down to how long you'll keep the mortgage. Model different scenarios with the free HOMEH mortgage calculator to see how the rate gap affects your payments.

Which should you choose?

There's no universal answer, but a few signals point clearly one way or the other.

• Choose closed if: you plan to stay in the home for the full term and want the lowest rate. This fits most buyers.
• Choose open if: you expect to sell soon, anticipate a large lump sum (like a bonus or inheritance), or have an uncertain timeline.
• Either way: compare the rate gap against the realistic chance you'll need to break early — and remember that closed mortgages already include useful prepayment privileges.

Your open-versus-closed decision also pairs with the fixed vs variable rate question. The two choices are separate: you can have a closed variable mortgage, an open fixed mortgage, and every combination in between.

Whatever mortgage you pick, keep more cash

Your mortgage type changes your rate — but HOMEH changes how much you walk away with. Eligible buyers get the industry's highest Cashback Rebate. Sellers list for 1%, or free when they also buy with HOMEH within 6 months, or $395 + HST with a Mere Posting. Estimate yours with the HOMEH cashback calculator.