Open Mortgage
Hypothèque ouverte in French
Quick definition
An open mortgage lets you prepay any amount, or pay off the entire balance, at any time with no penalty. The price of that freedom is a much higher interest rate, which is why open mortgages only make sense over short horizons.
Total freedom, steep price
With an open mortgage there is never a prepayment penalty. Sell the house, refinance, drop a windfall on the balance, pay it all off next month: you owe nothing beyond interest to the day you pay. The catch is the rate, which typically runs 1.5 to 3 or more percentage points above a comparable closed mortgage (as of July 2026). Open mortgage terms are also short, usually 6 months to a year for fixed versions, plus open variable options.
Lenders price it this way because an open mortgage gives them no certainty about how long the money stays lent. You are paying rent on flexibility, every single month you hold it.
When paying more is worth it
An open mortgage is a short-term parking spot, not a place to live. It earns its premium when you genuinely expect to clear the balance soon:
- You are selling the home within months and the sale will pay off the mortgage
- You are expecting a large sum: an inheritance, a bonus, proceeds from another property
- You are bridging between a purchase and a sale
- You are down to a small final balance you plan to wipe out quickly
Otherwise, closed wins
The test is simple math: the extra interest from the open rate over your realistic horizon versus the penalty to break a closed mortgage. Over a few months the open premium is small; over years it dwarfs almost any penalty. And most closed mortgages already allow 10% to 20% in extra payments each year through prepayment privileges, which covers most people's realistic ambitions without paying the open premium.
A middle path exists: a convertible mortgage is a short closed term, often 6 months, at near-closed rates that you can roll into a longer term at any time without penalty, useful if you are waiting on rates rather than on a sale.
In Canada
Every major Canadian lender offers open terms, but almost nobody stays in one for long: they are transition products for sellers, bridgers, and estates. Posted open rates at the big banks can approach double the discounted closed rates, so treat an open mortgage like a taxi meter that is always running and get out as soon as the reason you chose it has passed.
Worked example
Marc has accepted an offer on his house, closing in 3 months, and needs to renew a $300,000 balance in the meantime. An open mortgage costs 7.5% versus 4.5% for a 5-year closed. The open premium costs him about $2,250 over 3 months (3 extra points on $300,000 for a quarter of a year). Breaking the closed mortgage at the sale would cost a penalty of roughly three months' interest, about $3,375, and possibly more under an IRD formula. The open mortgage wins, and the moment the sale closes, he pays it off without a dollar of penalty.
Related terms
Reviewed by Alexandre Bernier, CFP®, CIM®, PFP®·Updated July 2026