Most Canadians automatically sign a closed mortgage without considering whether an open one might actually cost them less. The rate difference looks steep on paper—but if you're planning to sell, refinance, or make a large lump-sum payment within the next year, that "cheaper" closed rate could end up costing you thousands in penalties. How Open and Closed Mortgages Differ The core distinction comes down to flexibility versus cost: Closed Mortgage Interest Rate 1–2% higher than closed Lower rate Prepayment Pay off anytime, no penalty Limited to 10–20% annually Penalty to Break None 3 months interest or IRD Typical Term 6 months – 1 year 1–5 years Best For Short-term needs Long-term stability When an Open Mortgage Makes Sense An open mortgage is worth the premium in specific situations: You're selling within 12 months. If you know you're relocating or downsizing, an open mortgage lets you pay it off at closing without penalty. A closed mortgage penalty on a $400,000 balance could easily run $8,000–$15,000. You're expecting a large sum. Inheritance, business sale, or legal settlement coming? An open mortgage lets you apply the full amount immediately. You need a bridge. Buying before selling? An open mortgage on the new property gives you flexibility to pay down once your current home sells. Learn more about bridge financing When a Closed Mortgage Wins For the vast majority of Canadian homeowners, a closed mortgage is the better deal: You're staying put for 3+ years. The lower rate saves you far more than you'd ever prepay. You can live within prepayment privileges. Most closed mortgages allow 10–20% annual lump-sum payments plus increased monthly payments. That's $40,000–$80,000 in extra payments on a $400,000 mortgage—enough for almost anyone. Predictability matters. Fixed closed mortgages lock your rate and payment for the entire term. The Hidden Middle Ground: Convertible Mortgages Some lenders offer convertible mortgages that start as open or short-term and convert to a longer closed term without penalty. In our experience, these work well for buyers who aren't sure how long they'll stay in a property. Compare fixed and variable rates Calculating the Real Cost Scenario: $500,000 mortgage, planning to sell in 8 months Total Cost Open (1-yr) 7.45% $24,833 $0 $24,833 Closed (5-yr fixed) 4.89% $16,300 ~$12,000 IRD $28,300 The open mortgage saves $3,467 despite the higher rate—because the penalty wipes out the closed-rate advantage. Making the Right Choice The decision isn't about which mortgage is "better"—it's about matching the product to your timeline. If there's any chance you'll need to break the mortgage within a year, run the penalty math before committing to closed. Not Sure Which Mortgage Type Fits? We'll run the numbers on open vs closed for your specific situation—no obligation. Get a Free Comparison Call (416) 822-7357 Frequently Asked Questions Can I switch from open to closed mid-term? Yes, most lenders allow conversion from open to closed at current rates without penalty. The reverse is not possible. Do open mortgages affect my qualification? No. Lenders qualify you the same way regardless of open or closed. The stress test applies equally. Are there open variable mortgages? Yes. Open variable mortgages exist and offer the most flexibility, though at the highest rates.
