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Open Term vs Closed Term
A closed mortgage simply means there will be a penalty for breaking the mortgage contract before the term ends. The penalty is the greater of three months interest or Interest Rate Differential (IRD). Variable Rate mortgages do not have IRD penalties. There are also limitation as to how much you are allowed to pay the principal down. Mortgage contracts can range from 10% to 20% in pre-payments per annum.
An open mortgage do not have a penalty as it is an open mortgage contract. Open mortgages are generally issued with Variable mortgages where the interest rate is above the Bank of Canada's Prime rate.
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