OPEN vs. CLOSED TERM MORTGAGE

Once you have decided whether or not you are more comfortable with a Variable Rate Mortgage vs. Fixed Rate Mortgage, it is time to consider the options available on the mortgage term; that is, whether to obtain an Open or Closed term.

The mortgage term is the length of time your mortgage agreement will be in place with the Lender (for example, three years or five years). At the end of this contractual term, you will need either renew or renegotiate your mortgage, unless you are able to pay it off fully at that time. Refer to the Mortgage Renewal page to see why this step is so important and often so overlooked!

The main points of interest and difference between open and closed mortgages is how much flexibility the Lender gives you with respect to making extra payments on the principal or in paying out the mortgage entirely. These extra payments on a mortgage are usually called prepayments to a mortgage.
Open mortgages

Open Mortgage

  • you can make prepayments at any time during the term, or even pay out the entire mortgage balance completely before the end of the term, without incurring any penalties.
  • One thing to keep in mind is that the interest rate on an open mortgage is usually higher than on a closed mortgage with the same term length.


Closed mortgages

  • If you want to alter your contractual agreement during the term (for example, to take advantage of lower interest rates being offered), you will usually have to pay a penalty to break your existing mortgage term.
  • In most cases, the Lender may allow you to make prepayments without incurring a penalty.
  • Prepayment privileges on closed mortgages may be different depending on the lender. For example, one lender might let you put a 20% lump sum payment every year, while another might only let you put 10% down every year.
  • The rate on a closed mortgage is usually lower than on an open mortgage with the same term length.

Contact me and we can review your options together.


Reza helped me and my family with our 1st home purchase. From start to finish, Reza helped make the process easy for us, even with a couple bumps along the way. My questions and concerns were always answered promptly and he was always on the ball with anything we threw his way. I would recommend him to my family and friends in a heartbeat! - Thanks again Reza! - Janine Bartoli

Get In Touch

Reza Sabour - Mortgage Advisor

Phone: 778.229.4450

Fax: 604.398.2787

Email

Office Info

City Wide Mortgage Services - An independent member of Dominion Lending Centres

103 - 1245 West Broadway  Vancouver,  BC  V6H 1G7 

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