Open and closed mortgages

In addition to being conventional or high-ratio, a mortgage can be open or closed.

Closed mortgage

A closed mortgage is one that allows no early repayment except upon the sale of the property. In other words, a closed mortgage does not allow the borrower to make principal payments before the loan maturity date, except for scheduled payments, such as the monthly payment on a loan that is repaid monthly.

A closed mortgage does allow the borrower to repay all or part of the principal at any time, but this is subject to a notice period and a penalty. How the penalty is calculated and applied is specified in the mortgage contract.

Many closed mortgage products offer more restrictive variants of the open mortgage, but still provide more flexibility than closed mortgages. Many of these mortgages allow early repayment only at certain times (usually on the anniversary of the loan or once a calendar year), and this repayment is limited to a specified amount.

A closed mortgage may also offer other repayment options, including a double-up option and a lump-sum payment option.

Open mortgage

An open mortgage allows the borrower to make principal repayments at any time, for any amount, in addition to regular mortgage payments. The borrower may repay principal at any time, with or without notice, and without penalty. The specific terms of the loan are specified in the mortgage contract. These loans usually have terms ranging from six months to one year. Interest rates on open mortgages are higher than on closed mortgages, with similar conditions to protect the lender from uncertainty, since the loan can be repaid at any time.

Convertible mortgage

With this type of mortgage, the borrower can change the nature of the loan at any time. It is therefore possible to start with an open mortgage and then convert it to a closed mortgage. Such a loan negotiated at a variable rate could also be converted to a fixed rate.