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An open mortgage lets a borrower prepay any amount, up to and including the full balance, at any time with no prepayment penalty, in exchange for a higher interest rate than a comparable closed mortgage.
The premium buys flexibility. Borrowers who expect to sell, refinance, or pay off the mortgage soon — during a pending sale, a planned inheritance, or a short bridge period — can avoid the prepayment penalty that would apply to a closed mortgage.
Open mortgages are usually offered as short-term or variable products rather than long-term fixed terms, and they’re a smaller share of the Canadian market than closed mortgages, since most borrowers don’t need unlimited prepayment flexibility and prefer the lower closed rate.
No IRD, no three-month penalty: because prepayment is unrestricted, none of the usual closed-mortgage penalty calculations — interest rate differential or three months’ interest — apply.
Priced at a premium: lenders charge a higher rate to offset the prepayment flexibility, since they can’t rely on the interest income for the full term.
Useful during a refinance sequence: open terms are common for a short bridging period between a sale and a purchase, or while a borrower is deciding on a longer-term product.
Available on both fixed and variable: though most open mortgages in Canada are short-term or variable rather than long fixed terms.
Definitions reflect Canadian federal and provincial rules as of the “Updated” date above. Not advice for any specific file.
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