Definition
The open/closed distinction determines the repayment flexibility of a mortgage and directly influences the rate offered.
**Open mortgage**: - Can be repaid in full at any time without penalty - Rate generally 0.5-1% higher than a comparable closed mortgage - Typical terms: 6 months, 1 year - Ideal if sale is planned within less than a year or if inheritance/liquidity is expected
**Closed mortgage**: - Early repayment limited to contractual privileges (10-20% per year) - Penalty if repaid beyond privileges or before maturity - Lower rate → better for the majority of borrowers - Terms: 1 to 10 years (5-year closed = Canadian standard)
**Convertible mortgage**: Semi-open variant: rates close to closed, can be converted to a standard closed term at any time without penalty (but cannot be repaid in full freely).
**When to choose open**: - Imminent property sale - Large prepayment planned (asset liquidation, inheritance) - Significant life uncertainty (potential move, separation)
**Tip**: The majority of borrowers do not need an open mortgage — the prepayment privileges of closed mortgages (20% capital + 20% payment) cover most flexibility needs.