Products and terms
Open mortgage
A mortgage you can pay off in full at any time with no penalty, in exchange for a much higher rate.
An open mortgage lets you pay off the whole balance at any time, for any reason, with no prepayment charge. The lender can't count on keeping the loan, so it charges more, often over a full percentage point above a comparable closed mortgage.
Here's what that costs. On a $400,000 mortgage, a 1-point premium is about $4,000 a year. The variable-rate penalty you'd be avoiding is 3 months of interest, roughly $4,200, paid once. Over anything longer than a few months, the premium costs more than the penalty.
Open mortgages suit a short, known timeline: a property that's already listed, an estate being settled, a bridge between 2 closings, or a large, certain payment arriving soon.
For everyone else, a closed mortgage with good prepayment privileges gives more usable flexibility at a much lower price.
Related terms
Prepayment privilege
How much a closed mortgage lets you pay down each year without a penalty, typically 10% to 20% plus a payment increase.
Prepayment penalty
The charge for paying off a closed mortgage early: 3 months of interest on a variable, or the greater of that and the IRD on a fixed.
Term
How long your current mortgage contract and rate last, usually 1 to 5 years, which is different from the amortization.
This definition describes how the term is used in Canadian residential mortgage lending. It’s general information, not advice on your file. Rules, thresholds and rates change. Where a figure is quoted, it’s current as of the date shown on the related guide.
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