Closed mortgage
A mortgage that limits how much extra you can prepay each year and charges a penalty if you break the term early. Almost all standard Canadian mortgages are closed because the rates are materially lower than open.
Almost every advertised low rate in Canada is a closed mortgage. In exchange for that lower rate you accept two limits: a cap on how much extra you can prepay each year (the prepayment privilege), and a penalty if you break the term early.
The penalty math depends on rate type. Breaking a closed variable usually costs three months' interest; breaking a closed fixed costs the greater of three months' interest or the interest rate differential (IRD) — which on a high-rate mortgage broken early can run into five figures.
Closed doesn't mean locked forever. You can still use your annual prepayment privilege, port the mortgage to a new home, or in many cases blend-and-extend to a new rate without triggering the full penalty. A broker can tell you which lever is cheapest before you act.
Sources
- Mortgage fees: Prepayment penalties (Financial Consumer Agency of Canada)
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