Open vs closed mortgage —
which one saves you
the most?
Choose closed in almost every case — lowest rate, 10–20% annual prepayment privileges included. Open only if you’ll clear the full balance within months.
What sets them apart.
The deciding factor is almost always your time horizon — and how much you expect to deviate from the mortgage term.
Closed is always cheaper to borrow
Closed mortgages carry the lowest available rate — you give up the right to pay off the full balance early without a penalty, and lenders pass the savings to you. Open mortgages charge a noticeably higher rate for unlimited payoff freedom.
Closed still lets you pay extra — within limits
A closed mortgage is more flexible than it sounds. Most lenders allow a lump sum of 10–20% of the original balance per year, plus a payment increase of the same amount. That's far more room than most people ever use.
Open exits cost nothing; closed exits can
Pay off an open mortgage anytime with no penalty. Break a closed mortgage before maturity and you'll pay the greater of three months' interest or the IRD — which can be significant on a fixed closed term with a big-bank lender.
Open earns its premium only over short timelines
If you'll hold the mortgage for the full term, closed wins on cost every time. Open makes sense only when you expect to clear the entire balance within months — selling soon, a lump sum arriving, or bridging between homes.
How to choose
open or closed.
Timeline first, rate second, privileges third.
That order matters.
Know your exit timeline
The whole decision turns on one question: when do you expect to pay off the full balance? Staying for the term? Closed. Selling in a few months or expecting a large lump sum? Open may be worth it — but only in those cases.
Run the rate premium vs penalty math
Compare the extra interest you'd pay on an open mortgage against the penalty to break a closed one. A closed variable's break penalty is just three months' interest — often less than the open rate premium over the same period.
Get pre-approved for the right product
We shop both options across 100+ lenders and show you the net-cost comparison for your specific situation. Most clients end up with a closed mortgage that has strong prepayment privileges — the best of both worlds.
Which is right
for you?
Tap any situation below to see which mortgage type we’d recommend.
If you’re…You're buying your forever home
You're buying your forever home
Closed is the clear choice. Long horizon, lowest rate, and prepayment privileges cover any extra payments you'll realistically make. The default choice for good reason.
Apply for pre-approvalIf you’re…Your home is listed and you'll sell in a few months
Your home is listed and you'll sell in a few months
The no-penalty payoff on an open mortgage is worth the higher short-term rate. Or consider porting your existing mortgage to the next home instead.
Talk through your optionsIf you’re…An inheritance or sale proceeds are arriving next year
An inheritance or sale proceeds are arriving next year
A closed variable's small 3-month-interest penalty usually beats a full year at open rates. Use our prepayment penalty calculator to compare both numbers — it's usually decisive.
Run the penalty calculatorIf you’re…You're bridging between two properties short-term
You're bridging between two properties short-term
Look at purpose-built bridge financing for the gap — it's often cheaper and cleaner than a full open mortgage.
See bridge financingIf you’re…You want to pay your mortgage down aggressively
You want to pay your mortgage down aggressively
A closed mortgage with 20%+20% prepayment privileges is almost certainly enough — and at the lowest available rate. Compare lender prepayment terms as carefully as you compare rates.
Find the best prepayment termsIf you’re…You're not sure how long you'll stay in the home
You're not sure how long you'll stay in the home
A closed variable is often the safest hedge. Its break penalty is just three months' interest — small enough that selling or refinancing early rarely costs more than the open rate premium.
Fixed vs variable explainedClosed vs open —
every factor.
Same lender types, same mortgage — different terms. Here's exactly where each one wins.
Lowest rate. The standard choice.
- 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
Maximum flexibility. A niche use case.
- 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
| Factor | Closed | Open |
|---|---|---|
| Interest rate | Lowest available | Noticeably higher (see today’s rates) |
| Pay off in full anytime? | Penalty applies (3 months’ interest or IRD) | Yes — no penalty, ever |
| Annual prepayment | Typically 10–20% of original balance + payment increase | Unlimited |
| Break penalty if you sell early | Can be significant on a fixed closed term | None |
| Best for time horizon | Medium to long (full term) | Short (months) |
| Availability | Fixed and variable | Usually variable; shorter terms |
| Who picks it | The large majority of borrowers | A small minority with a specific exit plan |
Choose closed — unless you’re clearing the full balance within months.
A closed variable is the best hedge: lowest long-run cost, with a small 3-month-interest break penalty if plans change.
Common questions,
clear answers.
Prepayment privileges, rate premium, and penalty math — answered plainly.
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 typically run well above comparable closed rates — 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.
We’ll try to beat your rate.
If we can’t, we pay you $500.¹
¹ Rate Beat: eligible Big-6 bank written offers only · same product, term & amount · $500 paid to you or your nominated charity at closing · conditions apply
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Open vs closed is a question we field every day. Whether you're in Toronto, Vancouver, Calgary or anywhere in Canada, our advisors compare both options across 100+ lenders and show you the net-cost difference before you decide.