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There are a few differences between open and closed mortgages. The main difference is the flexibility you have in making extra payments or paying off your mortgage completely.
Open mortgages
The interest rate is usually higher than on a closed mortgage with a comparable term length. It allows more flexibility if you plan on putting extra money toward your mortgage.
An open mortgage may be a good choice for you if you:
- plan to pay off your mortgage soon
- plan to sell your home in the near future
- think you may have extra money to put toward your mortgage from time to time
Closed mortgages
The interest rate is usually lower than on an open mortgage with a comparable term length.
Closed term mortgages usually limit the amount of extra money you can put toward your mortgage each year. Your lender calls this a prepayment privilege, and it is included in your mortgage contract. Not all closed mortgages allow prepayment privileges. They vary from lender to lender.
A closed mortgage may be a good choice for you if:
- you plan to keep your home for the rest of your loan’s term
- the prepayment privileges provide enough flexibility for the prepayments you expect to make
