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.

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Deposit vs. Down Payment: Key Differences for Homebuyers

By Marci Deane • July 29, 2026
When you’re buying a home, two terms often cause confusion: deposit and down payment . While they’re related, they serve very different purposes in the homebuying process. Here’s what you need to know. What Is a Deposit? A deposit is the money you provide when you make an offer on a property. Think of it as a show of good faith that proves you’re serious about purchasing. How it works : Typically, you provide a certified cheque or bank draft that your real estate brokerage holds in trust. If your offer is accepted, the deposit remains in trust until the deal moves forward. If negotiations fall through, the deposit is refunded. Connection to your down payment : Once the sale is finalized, your deposit becomes part of your total down payment. Why it matters : The amount is negotiable, but a larger deposit can make your offer more attractive in a competitive market. Keep in mind, however, that if you back out after conditions are removed, you risk losing your deposit. What Is a Down Payment? Your down payment is the amount you contribute toward the purchase price of your home when securing a mortgage. Minimum requirement : In Canada, the minimum down payment is 5% of the home’s purchase price. Anything less than 20% requires mortgage default insurance. Sources : Down payments can come from your savings, the sale of another property, RRSP withdrawals (through the Home Buyers’ Plan), a gift from family, or even borrowed funds. Example: How They Work Together Imagine you’re buying a $400,000 home with a 10% down payment ($40,000). When you make your offer, you provide a $10,000 deposit . Once conditions are met, that deposit is transferred to your lawyer’s trust account. At closing, you add the remaining $30,000 to complete your full down payment. The lender provides the rest—$360,000—through your mortgage. The Bottom Line Your deposit shows commitment and secures your offer, while your down payment is what makes the mortgage possible. Together, they work hand in hand to get you into your new home. 📞 If you’d like clarity on deposits, down payments, or any other part of the mortgage process, let’s connect. I’d be happy to walk you through it step by step.

RRSP Home Buyers’ Plan Explained: A Smart Way to Buy Your First Home

By Marci Deane • July 22, 2026
Saving for a down payment is one of the biggest challenges first-time buyers face. What many don’t realize is that the Canadian government offers a program designed to make it easier—the Home Buyers’ Plan (HBP) . This program allows you to withdraw money from your RRSP to help purchase your first home, without immediate tax consequences. Here’s how it works: Who Qualifies? To be eligible, you generally need to be a first-time home buyer. In practical terms, this means you must not have owned a home in the past four years, nor lived in a property owned by your spouse or partner during that time. There are also special allowances if you’re living with a disability or helping a relative with a disability. In these cases, you can use the HBP even if you’ve owned a home more recently. How Much Can You Withdraw? Under the program, you can access up to $35,000 from your RRSP as an individual. Couples can combine their withdrawals for a total of $70,000 . These funds must have been in your RRSP for at least 90 days before you take them out. Paying It Back The HBP isn’t “free money”—it’s an interest-free loan from your own retirement savings. You’ll have 15 years to repay the full amount back into your RRSP, starting in the second year after withdrawal. Each year, the CRA will send you an HBP Statement of Account outlining how much needs to be repaid. If you don’t make your repayment in a given year, that amount will be added to your taxable income. Why It’s a Smart Strategy The HBP can give first-time buyers a powerful boost toward homeownership. It helps you put together a larger down payment, which can reduce your mortgage amount and monthly payments. Just remember: it’s important to balance the short-term benefit of homeownership with the long-term impact on your retirement savings. Next Steps Thinking about using the Home Buyers’ Plan? Let’s sit down and review whether it’s the right move for you. Together, we can create a strategy that gets you into your first home while keeping your future financial goals on track. 📞 Reach out anytime—it would be a pleasure to guide you through the process.

Bank of Canada Holds Rate at 2.25% — July 15, 2026

By Marci Deane • July 15, 2026
The Bank of Canada announced today that it is holding its target for the overnight rate at 2.25%, with the Bank Rate at 2.5% and the deposit rate at 2.20%. The tone of today's announcement is notably more optimistic than previous months. Here's what's changed and what it means for you.