Closed Mortgages

Lenders typically offer two different types of mortgages with various terms.  Less flexible Closed Mortgages are generally less expensive than their Open Mortgages counterparts. What this means is that the interest rate on Closed Mortgages is lower in most cases when compared with Open Mortgages containing similar terms and conditions.

Closed Mortgages in Canada are more popular than variable rate or floating rate mortgages.  In fact, the five year closed fixed rate mortgage product is the most popular choice for mortgages by Canadians. 

Borrowers with Closed Mortgages still have some flexibility.  Lenders in many cases allow a certain amount of prepayments per month, or year, without any prepayment penalty.  Borrowers who want to change the terms of their mortgage agreement during the existing term of the mortgage usually have to pay a penalty to break or renegotiate their mortgage.  In many cases, the penalty is blended into the mortgage, and although it appears you may not have paid anything, you certainly have. 

It is particularly important to compare not only the mortgage rates that different lenders offer, but also the features of the mortgage product being offered.  For example, one lender may allow a 15% lump sum extra payments every year, while another lender may offer you a 10% lump sum extra payments per year.

Individuals not intending on paying off their mortgage over the short term are in many cases safer and better off selecting a closed term mortgage.  A closed term mortgage does not necessarily mean a five year fixed mortgage; it can mean a 5 year variable rate mortgage. 

As mentioned earlier, interest rates on closed mortgages are generally cheaper than open mortgages. Borrowers should carefully budget and plan prior to selecting a mortgage product and term.   

Convertible Closed Mortgage

Convertible Closed Mortgages provide borrowers many of the same benefits as Closed Mortgages, and typically are variable rate or floating rate mortgages which can be converted to a longer, closed term without any prepayment charges. They provide borrowers with added flexibility for payment schedules, which can be monthly, semi-monthly, bi-weekly and even weekly.  These types of mortgages allow borrowers to benefit from potential mortgage rate decreases.  Lenders, in many cases, will charge the borrower a fee to convert a convertible closed mortgage which has a variable rate to a fixed rate. 

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2 Year 2.14%
3 Year 2.44%
4 Year 2.49%
5 Year 2.49%
10 Year 3.84%

April 27, 2017

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