What is the Difference Between Open Mortgage and Closed Mortgage?

The main difference between an open mortgage and a closed mortgage lies in their flexibility and interest rates. Here is a comparison of the two types of mortgages:

Open Mortgage:

• Offers flexibility to increase payments, repay in full, refinance, or renegotiate any time during the mortgage term without paying a prepayment charge.
• Generally has higher interest rates compared to closed mortgages.
• Suitable for those who might move, sell their home, or be able to pay off more of their mortgage before the end of their term.
• Can be used when expecting to receive additional cash to pay off the mortgage, such as an inheritance, proceeds from the sale of a home, or a significant increase in income.
• The interest rate on an open mortgage is often higher than the interest rate on a closed mortgage.

Closed Mortgage:

• Limits prepayment options and comes with a prepayment charge if the mortgage is broken, renegotiated, or refinanced before the end of the term.
• Usually has lower interest rates than open mortgages, which can result in interest savings over time.
• Commonly used by homeowners who do not need the extra flexibility of an open mortgage and prefer fixed monthly payments for budgeting purposes.
• Some closed mortgages permit certain prepayment privileges, such as the right to make a prepayment of a certain percentage of the original mortgage amount each year without paying a prepayment charge.

In summary, an open mortgage provides more flexibility in payments and repayment options, while a closed mortgage offers lower interest rates and stricter terms. The choice between the two depends on your financial plans and circumstances. It is essential to weigh the pros and cons of each type of mortgage before making a decision.

Comparative Table: Open Mortgage vs Closed Mortgage

The main difference between an open mortgage and a closed mortgage lies in their flexibility and interest rates. Here is a table comparing the two:

When deciding between an open and closed mortgage, consider your financial situation and future plans. If you expect to pay off your mortgage earlier or refinance in the future, an open mortgage might be more suitable. However, if you prefer lower interest rates and don't plan to pay off your mortgage early or refinance, a closed mortgage may be the better option.