Mortgages 101: Understanding the Differences Between ‘Open’ and ‘Closed’ Mortgages

Marci • July 28, 2014

If you’re planning to buy a home this year, you’re probably already investigating mortgages and the different options available to you. The reality is that for many families, home ownership is simply out of reach without taking on a mortgage. Mortgages come in a variety of forms, and it’s important to understand how they differ. ‘Open’ and ‘closed’ mortgages are two options you’ll often encounter when seeking funds to buy your home. Here’s what you need to know about these two different mortgage types, and what they mean for your financial future.

Open Versus Closed: Pay Periods and Penalties

The main difference between open and closed mortgages is that open mortgages allow early repayment, while closed mortgages do not. Every mortgage has a set repayment period that dictates what your payment schedule will be and when you will have paid your debt in full. A closed mortgage has a set repayment term, and full repayment of your mortgage prior to the end of this term will result in a penalty fee. In contrast, open mortgages offer repayment terms ranging from six months to several years, meaning you can repay your mortgage at your discretion without incurring penalties.
There is, though, one exception to the payment penalties for closed mortgages. Although you may not repay a closed mortgage in full prior to the end of the term, most of he time, you may remit up to 20 percent of the original mortgage amount per year by using a prepayment option. Talk to your mortgage advisor for a full explanation of how prepayment can expedite the mortgage repayment process.

Closed Mortgage Prepayment Penalties

If you decide to refinance or sell the property prior to the closed mortgage maturity date, you will incur a prepayment penalty equal to either three months’ interest or the Interest Rate Differential.
In the former case, three months’ interest is payable in one lump sum, while IRD applies only if current interest rates are below prevailing rates on the date of initial loan disbursement.
IRD is calculated by multiplying the difference between both percentage interest rates by outstanding balance and then by your remaining loan term. Thus, the earlier you repay the greater penalty you will incur in both the above scenarios.

That Pesky Interest: How Your Mortgage Type Changes Your Interest Rate

A typical mortgage will have an interest rate that is either fixed or variable. If your mortgage has a fixed interest rate, you pay a set percent of interest every month for the duration of your mortgage – and this amount never changes. If your mortgage has a variable interest rate, then the amount of interest you pay will fluctuate according to changes in the prime rate.
Regardless of whether your interest rate is fixed or variable, you will pay a different amount of interest for a closed mortgage than for an open mortgage. Open mortgages tend to have higher interest rates than closed mortgages, because in an open mortgage there is a lower probability that you will have the mortgage for the full term.

Open or Closed: Which is the Better Option?

Ultimately, deciding whether to opt for an open or closed mortgage will depend on your own personal needs and your plans for your financial future. If you have a limited income and require a set repayment schedule, a closed mortgage will give you the low interest rate and small monthly payment that you need. If, however, you have a higher amount of cash on hand and you expect to repay your mortgage very soon, an open mortgage will allow you to save a great deal of money in interest that you would have paid over the long term. Just be aware, however, that your interest rate may fluctuate over time – possibly making your monthly payments significantly higher than expected. The main consideration to make in deciding whether an open or closed mortgage is right for you is how long you plan to be paying off your mortgage. If you expect to pay off your mortgage extremely soon, an open mortgage is ideal. Otherwise, a closed mortgage is the safer option. Buying a home is a major purchase, and the mortgage you choose is one that will likely stay with you for most of your life. Open and closed mortgages offer vastly different terms that will appeal to different buyers, and it can be difficult to determine which option is your best bet. For more information about your mortgage options, and to discover which kind of mortgage will best meet your needs, contact our office today.

Share

What Online Mortgage Calculators Can—and Can’t—Tell You

By Marci Deane • August 19, 2026
What Online Mortgage Calculators Can—and Can’t—Tell You Online mortgage calculators are everywhere—and on the surface, they seem like a no-brainer. You plug in some numbers, and out pops what you can “afford.” Simple, right? Not quite. While the math itself is correct, the story behind those numbers is often misleading. Mortgage qualification isn’t just about numbers—it’s about context, risk, and lender policy. And that’s where calculators fall short. The Numbers Are Accurate—but the Picture Isn’t An online calculator can show you what a payment might look like at a given interest rate, or how making extra payments could reduce your amortization. That’s useful information! But when it comes to mortgage qualification , calculators don’t account for the many variables that lenders consider, such as: Your credit history and score Employment type (salary, self-employed, contract) Outstanding debts and monthly obligations Assets, savings, and down payment source The property type and location you’re buying Lenders evaluate all these factors through their internal risk models. That means two people entering the exact same numbers into a calculator could receive very different results when they actually apply for a mortgage. Why Online Calculators Can Mislead You When you see a “How much can I afford?” or “Mortgage Qualification” calculator online, it’s easy to treat the result as fact. But these tools don’t know your financial story—they only crunch the data you enter. A calculator can’t predict how a lender views your risk, how new mortgage rules apply to your file, or how things like spousal support, car loans, or variable income will impact approval. In short: calculators estimate payments, not qualification . Use Calculators the Right Way Don’t get us wrong—online calculators still have value. Use them to explore different “what-if” scenarios: How do payments change with different down payment amounts? How would a rate increase affect affordability? What if you added $100 a month to your payments? These tools are great for helping you understand your comfort zone. Just remember: they’re a starting point, not a green light. The Real First Step: Get a Pre-Approval If you’re serious about buying a home, skip the guesswork and get a mortgage pre-approval . It’s quick, free, and gives you real-world clarity on what you can afford. A pre-approval looks at your full financial picture—income, credit, debts, assets—and provides a framework for your purchase price, payment range, and rate options. It’s the only way to get a reliable answer to the question, “What can I really afford?” Final Thoughts Online calculators are convenient, but they can’t replace expert advice. Think of them as a starting point, not a solution. A professional mortgage broker can interpret the numbers, navigate lender policies, and tailor your financing strategy to your actual situation. If you’d like help understanding your true buying power—or want to get pre-approved with confidence— reach out anytime . I’d be happy to walk you through your options and help you make sense of the numbers.

Going Through a Divorce? Don’t Let Your Credit Take the Hit

By Marci Deane • August 12, 2026
Going Through a Divorce? Don’t Let Your Credit Take the Hit Divorce is stressful enough without adding financial fallout to the mix. Between lawyers, paperwork, and emotional strain, it’s easy to overlook how a separation can impact your credit. But your financial future depends on protecting it now—because long after the dust settles, a damaged credit score can linger. Here are a few smart steps to help keep your credit strong and your finances steady as you move forward. 1. Take Control of Joint Debts When it comes to joint debt, both parties are equally responsible—no matter what your divorce agreement says. If your ex misses a payment on an account with your name attached, your credit takes the hit too. Go through all joint credit cards, loans, and lines of credit. Wherever possible: Close joint accounts to stop future shared use. Transfer balances to the person responsible for repayment. Notify lenders in writing of any changes to account ownership. Once everything is updated, pull your credit report after three to six months to confirm all joint accounts have been closed and reporting correctly. Mistakes happen—stay proactive to prevent surprises later. 2. Open Your Own Bank Accounts Separation means financial independence, and that starts with your own banking. Open a new chequing account in your name only and redirect your pay deposits and bill payments there. At the same time, close any joint bank accounts and change passwords on existing online banking and credit profiles. Even in peaceful separations, shared access can cause confusion—or conflict. Protect yourself by ensuring your money and information are secure. 3. Start Building Credit in Your Name If most of your past credit was tied to your spouse’s name, now’s the time to establish your own. Apply for a small personal credit card or secured credit product . Use it sparingly and pay it off in full each month. This helps you build a solid individual credit history, setting the stage for future goals like buying a home, refinancing, or starting fresh financially. 4. Keep an Eye on Your Credit Monitor your credit report regularly for errors or unexpected changes. You can request free reports from both major credit bureaus in Canada— Equifax and TransUnion —once a year. Tracking your credit isn’t just about catching mistakes; it helps you see your progress as you rebuild your financial independence. Final Thoughts Divorce can be emotionally draining, but protecting your credit doesn’t have to be complicated. By taking a few careful steps now—closing joint accounts, building credit in your name, and monitoring your reports—you’ll safeguard your financial health and gain peace of mind as you start your next chapter. If you’d like personalized guidance on managing credit during or after a divorce, reach out anytime. I’d be happy to walk you through your options.

Employment and Mortgage Qualification: What Lenders Look For

By Marci Deane • August 5, 2026
When you apply for a mortgage, your employment history and status carry a lot of weight. Even if you feel secure in your job, lenders need proof that your income is reliable and will continue. To them, your employment status is one of the strongest indicators of whether you can make your mortgage payments long term. Here’s how lenders typically view different employment situations: Permanent Employment This is the gold standard. Once you’ve passed any probationary period and hold permanent status, lenders see you as a lower risk. It shows that your employer is committed to you, and your income is steady. Probationary Periods If you’re still on probation—usually 3 to 6 months, though sometimes longer—lenders may hesitate. That’s because your employer can end your contract without cause during this period. Once probation is over, you’re considered more secure. That said, context matters. If you’ve worked with the same company for years as a contractor and just transitioned into full-time employment, lenders may accept a letter from your employer confirming that probation is waived. Documentation is key here. Parental Leave Being on or about to take parental leave doesn’t mean you can’t qualify for a mortgage. As long as you have a letter from your employer guaranteeing your position and return-to-work date, lenders can use your regular salary—not your leave income—when assessing your application. Term Contracts This is one of the trickiest categories. Even highly skilled professionals with strong incomes can face challenges here. A term contract has a start and end date, which makes lenders question the stability of your future income. To use term-contract income, lenders generally want to see at least two years of history, or proof that your contract has already been renewed. The more evidence you can show of consistent employment, the stronger your case will be. The Bottom Line If you’re planning to apply for a mortgage, it’s important to understand how your employment status could affect your approval. Whether you’re starting a new job, coming back from leave, or working under contract, lenders want documentation that proves your income is reliable. 📞 If you’ve recently changed jobs or are planning a career shift, let’s connect. I can help you prepare your file so you qualify with confidence and avoid surprises in the approval process.