What is the difference between an open and closed mortgage in Canada?

A closed mortgage has restrictions on how much extra you can repay — exceeding your prepayment privileges triggers a penalty. An open mortgage allows you to repay any amount at any time with no penalty. In exchange for this flexibility, lenders charge a higher interest rate on open mortgages — typically 1.00–2.00% higher than comparable closed mortgages. Most Canadians choose closed mortgages because the rate premium is rarely worth the flexibility.

Are open mortgages more expensive in Canada?

Yes, significantly. An open variable rate mortgage is typically priced 1.00–1.50% higher than a closed variable rate mortgage. An open fixed mortgage is rare but when available runs 1.50–2.00% higher. On a $500,000 mortgage, a 1.25% rate premium adds roughly $6,250 per year in extra interest costs.

When does an open mortgage make sense in Canada?

An open mortgage makes sense when you are certain you will need to repay or refinance within a short period and the certainty of no penalty is worth the rate premium. Primary examples: you are listing your home for sale and expect to close within 3–6 months, you are expecting a large inheritance or business sale proceeding, or you need a short-term bridge solution. Rarely is it worth choosing a 5-year open mortgage over a 5-year closed mortgage.

Can you switch from an open to a closed mortgage in Canada?

Yes. You can switch from open to closed at any time by refinancing or renewing. There is no penalty for paying out an open mortgage (that is the point), so you can move to a closed mortgage whenever it makes financial sense to lock in a lower rate. Timing this switch wisely requires monitoring market rates.

What is a convertible mortgage in Canada?

A convertible mortgage is a short-term (typically 6-month) closed mortgage that can be converted to a longer closed term at any time without penalty. It is a middle ground between open and closed — rates are slightly higher than a standard closed mortgage but much lower than open. It suits borrowers who expect to want a rate change but are not sure exactly when.

Open vs Closed Mortgage Canada: What You Are Actually Paying For (2026)

Open vs Closed: The Core Trade-Off

Feature	Open Mortgage	Closed Mortgage
Prepay any amount	Yes, anytime	No — up to privilege limit only
Penalty to break	None	3 months interest or IRD
Interest rate	Higher (1.00–2.00% premium)	Lower
Typical use	Short-term bridge, imminent sale	Most homeowners (3–5 yr terms)
Availability	Variable widely; fixed rare	Standard for all lenders

The Rate Premium: What Open Actually Costs

The rate premium for open mortgages fluctuates with the lending environment, but historically runs:

Type	Closed Rate (2026 estimate)	Open Rate (2026 estimate)	Premium
Variable 5-year	Prime − 0.75% ≈ 4.45%	Prime + 0.25% ≈ 5.45%	~1.00%
1-year fixed	4.74%	N/A (rarely offered)	—
6-month open	5.59%	6.09%	~0.50%

Rates for illustration — verify current rates with your lender or broker.

Annual Cost of the Premium

On a $500,000 mortgage with a 1.00% rate premium:

$500,000 × 1.00% = $5,000 per year in extra interest

When Open Is Worth It: The Break-Even Test

An open mortgage makes financial sense when the penalty you would pay on a closed mortgage would exceed the total rate premium you pay during the open period.

Example:

You expect to sell your home in 4 months
Closed variable mortgage: 4.45%
Open variable mortgage: 5.45%
Rate premium: 1.00%
Balance: $480,000
Monthly extra interest (open): $480,000 × 1.00% ÷ 12 = $400/month
4 months of premium: $1,600

If the 3-month variable penalty on your closed mortgage would be ~$6,500, paying $1,600 extra in open mortgage interest to avoid that penalty is a clear financial win.

If you are uncertain about your timeline — sale might take 6 months, might take 12 — the math shifts:

12 months of premium: $4,800 — still beats the $6,500 penalty
24 months of premium: $9,600 — now losing money vs. closing and paying the penalty at 18 months

Scenarios Where Open Makes Sense

Scenario	Why Open Mortgage Works
Listing your home within 3–6 months	Avoids penalty on sale; premium justified by short timeline
Awaiting business sale or large inheritance	Will repay lump sum imminently; certainty of no penalty valuable
Bridge loan period	Short-term financing between sale and purchase closing
New construction closing uncertainty	Build delays common; open avoids penalty if you need to exit
Separating and selling matrimonial home	Timeline often unpredictable; flexibility reduces legal complexity

Scenarios Where Open Does NOT Make Sense

Scenario	Why Closed Is Better
Standard 5-year term homeowner	You will almost certainly pay far more in premium than any penalty you avoid
Using open “just in case” you might sell	The rate premium adds up quickly vs. the probability of needing flexibility
Investor property with stable plan	Closed mortgage’s lower rate improves cash flow; use prepayment privileges for extra payments
Planning to port at renewal	Portability on a closed mortgage handles moves without a penalty

The Convertible Mortgage: A Middle Ground

Several Canadian lenders offer convertible mortgages — typically 6-month terms at rates between closed and open:

Feature	Typical Terms
Rate	~0.25–0.50% above standard 6-month closed
Term	6 months
Break penalty	None — can convert to longer term anytime
Best for	Borrowers expecting rates to drop within 6 months who want flexibility without the full open premium

A convertible mortgage lets you watch where rates go, then lock into a 3 or 5-year closed term when you are ready — without paying an IRD penalty.

Variable Open vs Variable Closed: The Most Common Comparison

Most open mortgage demand is for variable rate (not fixed). Here is how they compare in practice:

	Variable Closed	Variable Open
Rate	Prime − 0.75%	Prime + 0.25%
Penalty to break	3 months’ interest (predictable, moderate)	None
Annual extra cost on $500K	—	$5,000
Worth it if…	You plan to stay 2+ years	You plan to exit within ~15 months

The irony of variable open: The 3-month interest penalty on a closed variable is usually predictable and modest. Paying a 1% annual premium to avoid a 3-month penalty that would cost you less than 3 months of the premium is rarely rational for long holding periods.

Key Questions to Ask Your Broker

What is the exact rate difference between your open and closed options today?
How long do you expect to hold this mortgage before repaying or refinancing?
What would the penalty be on the comparable closed mortgage?
Is a convertible or short-term closed mortgage a better solution than open?

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