What’s the difference between a closed vs open mortgage?

What’s the difference between a closed vs open mortgage?

If you’re planning on investing in buying a new house in Aurora, then odds are that you’re going to have to apply for a mortgage. There are two main types that you’ll have to choose between – a closed and an open mortgage. The following is a brief rundown of the differences between the two.


One big advantage of choosing a closed mortgage is that they have lower interest rates. There is a lot less flexibility in how you can pay it off. This is because there are penalties in place in the event that you pay your loan off early. Closed mortgages generally allow for accelerated payments. In some cases, a lender might allow you to pay an annual lump sum or double up on your scheduled mortgage payments.

The fees for paying off your loan before the term ends can be a bit stiff. These fees are known as break fees. They can amount to either the sum of three months of interest or the interest rate differential. If you end up having to sell your home before the loan term ends you could end up with less money because of the break fees.


An open mortgage allows for way more flexibility than a closed. There are no break fees, which mean that you can pay it off in its entirety any time without any penalties. This can be beneficial if you want more freedom or if you plan on moving to a new house within a few years.

Yet, there is a drawback. In return for this flexibility, you will most likely have to pay variable interest rates that can be high. But, an open mortgage does allow you to switch to a regular fixed rate.

Both open mortgages and closed mortgages have their pros and cons. Deciding which is best for you depends on what your personal needs are. If you plan on staying in your new home and want to save money on interest, a closed mortgage may is your best option. If you want the flexibility to pay off your mortgage, an open mortgage may be better suited to your needs


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