What does a closed vs open variable rate mortgage mean?

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The difference between an open mortgage and a closed mortgage lies mainly in its payment terms. An open mortgage allows the borrower to pay it off any time, without penalty. On the other hand, closed mortgages refer to a locked system, where you are committed for a certain period of time. In this situation, you are not allowed to pay off your mortgage under any circumstances except when you sell your property. There are a lot of other differences between the two. An open mortgage normally is offered for a shorter period and for a higher interest rates compared to closed mortgages of the same duration. The term of such mortgages varies from six months to one year. A closed mortgage option does not give the freedom to negotiate or refinance the mortgage before the end of its tenure. In case the buyer has to renew it, he will have to pay the penalty too. The penalty associated with the closed mortgages is very high. Normally the mortgage lender charges you a three-month interest or the ... more
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