TipsJune 13, 2026 · 5 min read
Closed vs Open Mortgage in Canada — Which Should You Choose?
Closed mortgages have lower rates but break penalties. Open mortgages have no penalties but much higher rates. Here's when each makes sense.
Closed Mortgage
A closed mortgage locks you in for the full term. You can't pay it off early (beyond allowed prepayments) without paying a break penalty.
- Rate: Lower (currently 4.84–4.99% for 5-year fixed)
- Prepayment: Usually 10–20% of original balance per year without penalty
- Break penalty: 3 months interest (variable) or IRD (fixed)
- Best for: Most homebuyers who plan to stay in the home for the term
Open Mortgage
An open mortgage can be paid off at any time with no penalty.
- Rate: Much higher — typically Prime + 0.75% to 1.00% (currently ~5.20–5.45%)
- Prepayment: Unlimited — pay off whenever you want
- Break penalty: None
- Best for: Selling soon, expecting a large windfall, very short-term bridge financing
Side by Side Comparison
| Factor | Closed | Open |
|---|
| Rate (5-year) | 4.84% | 5.35% |
| Monthly ($500K) | $2,855 | $3,068 |
| 5-year extra cost | — | +$12,780 |
| Early payoff penalty | Yes | None |
The Verdict
For 95% of Canadian homebuyers, a closed mortgage is the right choice. The rate savings over an open mortgage are significant. Unless you have a very specific short-term need — selling within months, expecting an inheritance — choose closed.
If you want flexibility, choose a variable rate closed mortgage. The break penalty is only 3 months interest (much less than a fixed IRD), and you still benefit from the lower rate.
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Go to Mortgage Tools →⚠️ This article is for informational purposes only. Not financial advice. Canada Mortgage Rates is not a licensed mortgage broker. Always verify with a licensed professional.
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