Open and Closed Mortgages in Kelowna: What’s the Difference?

Open and Closed Mortgages in Kelowna: What’s the Difference?


After years of planning and saving, you are finally ready to start hunting for a new home. You have a downpayment ready to be utilized, now all you have to do is secure a mortgage. So what type of mortgage will you choose?

Yes, there are multiple mortgage styles that you must consider when deciding on how you will finance your new home. This is where a mortgage professional comes into play. A mortgage broker or brokerage team, such as John Antle Mortgages has worked with thousands of homebuyers and can provide insight on the best mortgage for your needs. Aside from our insight, we always encourage our customers to do their own research as well to gain a deeper understanding of the financial systems and tools that affect their wellbeing. In this article, we will look to discover the differences between open and closed mortgages.

Open Mortgages

An open mortgage is a home lending solution that can be fully paid off at any time, without penalization to the owner. This can be an appealing option if you have the ability to pay off your mortgage in the near future. For example, if you have multiple properties and you are considering selling one of the more valuable homes in the next few months, you could potentially use those funds to pay off the balance of the other homes. You also may be coming into a large sum of money, but don’t want to wait for those funds to come through, so you can utilize an open mortgage in the meantime. There are many homeowners that enjoy the flexibility of paying off their mortgage faster with additional sources of income they acquire, such as tax returns and bonuses.

The Price of Flexibility

This style of mortgage is flexible, however, they usually come with mortgage rates that are variable and slightly higher. Paying the prime rate plus a premium is expected in this situation. When you utilize an open mortgage, you can always transition into a regular, fixed mortgage down the road if you decide that the variable interest rates are no longer a cost you want to incur. Flexibility has a price, you have to decide exactly how much you are willing to pay for that freedom.


Closed Mortgages

Many homeowners that plan to pay their mortgage off over a long period of time tend to favour closed mortgages. Interest rates for closed mortgages are typically lower than open mortgages. If you are holding a debt for a significant term, such as 20 years, you want to ensure that your borrowing costs are as low as possible.

Less Interest, Less Flexibility

These lower interest rates come at a cost if you plan on making payments higher than what your mortgage allows, paying off the entire balance prior to the end of the term, or renegotiating your set interest rate. In these situations, your lender will often apply a penalty fee, can be quite significant. In contrast to the open mortgage, a closed mortgage entices with lower interest rates at the cost of less flexibility.

The penalty amount varies for each situation and lender, so it is important to thoroughly go through your mortgage contract and understand all the costs that you may be in store for. Instead of leaving our clients to sift through mountains of paperwork, our team ensures that they fully understand the type of mortgage that they are signing up for, always suggesting the solution that best fits their needs while saving them the most money.


Find Your Mortgage With the Best Partner In Kelowna

We hope you have a greater understanding of the differences between closed and open mortgages after reading this article! As we always say, every situation warrants a different solution, which may not always be evident at first glance.

Are you still unsure if you should go with a closed or open mortgage? Connect with our team and we will give you the insight you require to make choosing a mortgage a smooth and simple process!


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