What is an open mortgage?
In Canada, home buyers can choose from several types of mortgages, including open mortgages. Find out how open mortgages work, as well as the pros and cons.
Why are mortgages so expensive in Canada?
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In Canada, an open mortgage is a type of mortgage that allows you to pay back the mortgage principal, in part or in full, anytime without incurring a prepayment penalty. Open mortgages are more flexible than closed mortgages, which charge a prepayment penalty if you renegotiate or refinance your mortgage, or if you pay off what you owe before the mortgage term ends. An open mortgage may be a good option if you think you can pay off your mortgage quickly; however, in Canada, interest rates tend to be higher for open mortgages.
With an open mortgage, you may have different options to pay down your mortgage faster, depending on your lender and your mortgage agreement:
- Making lump-sum payments up to a certain amount or percentage of your original mortgage
- Increasing the amount of your mortgage payments by a certain percentage
- Doubling up on a mortgage payment each year
- Accelerating your mortgage payments (for example, from monthly to biweekly, or biweekly to weekly)
Example: “When Erdem’s mortgage came up for renewal, he chose an open mortgage because he knew he planned to sell the home soon and wanted to avoid a prepayment penalty.”
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Juliette was worried about needing to upsize her mortgage to afford the condo of her dreams. Crunching the numbers gave her the confidence to make the jump.
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