Open vs. Closed Mortgages: A Simple Guide for BC Homeowners
Choosing between an open or closed mortgage is one of the biggest decisions you will make when buying a home in British Columbia. This choice affects your monthly budget and how much interest you pay over time.
As a Top 75 Mortgage Broker in Canada since 2019, I have helped thousands of families in Surrey, Vancouver, and across BC make this choice with confidence.
What is an Open Mortgage?
An open mortgage is a home loan that gives you total freedom. You can pay off some or all of your mortgage whenever you want without paying any penalty fees.
Open Mortgage = Flexibility.
People in BC often choose this if they plan to sell their house soon or expect a large amount of money (like a work bonus) to pay down the debt. Because you get more freedom, the interest rates are usually higher than those of other options.
What is a Closed Mortgage?
A closed mortgage is a loan with a set schedule. It usually offers much lower interest rates than an open mortgage. However, it limits how much extra money you can pay toward your loan each year.
Closed Mortgage = Lower Rate.
If you try to pay off the whole mortgage or switch lenders before your term ends, you will have to pay a “penalty fee.” Most BC homeowners choose this mortgage because here they get fixed mortgage rates that save the most money.
What is the Difference? Open vs Closed Mortgage in BC
The main difference is freedom vs. cost.
- Open Mortgages have high rates, but let you pay off your debt anytime for free.
- Closed Mortgages have low rates but charge you high fees if you break the contract.
| Feature | Open Mortgage | Closed Mortgage |
|---|---|---|
| Rates | Higher | Lower (Best Savings) |
| Flexibility | Unlimited | Strict Limits |
| Fees | No Penalty | High Penalty |
| Best For | Short-term plans | Long-term stability |
| Popular in BC? | Rare | Very Common |
Which Mortgage Is Better in BC: Open or Closed?
In most cases, a closed mortgage is better for BC homeowners. Because home prices in cities like Vancouver and Burnaby are high, most people need the lowest interest rate possible to keep monthly payments affordable.
However, an open mortgage might be better if:
- You are “flipping” a house in Surrey.
- You are waiting for a large inheritance.
- You plan to move out of BC in less than a year.
If you are struggling to qualify for either at a big bank, we offer private lenders in BC and B-lender options to help you get approved.
How to Decide Between an Open and Closed Mortgage in BC
| Situation | Choose Open Mortgage | Choose Closed Mortgage |
|---|---|---|
| Selling Soon | ✔ Selling within 1 year | ✘ Not planning to sell |
| Large Cash Coming | ✔ Expecting bonus, inheritance, or payout | ✘ No large lump sum expected |
| Flexibility | ✔ Want full repayment freedom | ✘ Okay with restrictions |
| Lowest Rate | ✘ Rates are higher | ✔ Want the lowest interest rate |
| Length of Stay | ✘ Short-term ownership | ✔ Staying 3–5 years or longer |
| Payment Stability | ✘ Payments may cost more | ✔ Want stable, predictable payments |
Three Questions to Find Your Perfect Match
Ask yourself these three questions to decide which path to take:
- Am I selling my home in the next 12 months? (If yes, choose Open).
- Is getting the lowest monthly payment my main goal? (If yes, choose Closed).
- Will I get a large amount of cash to pay off my debt soon? (If yes, choose Open).
What Happens If You Break a Closed Mortgage?
You may pay 3 months’ interest OR Interest Rate Differential (IRD). IRD penalties can be very high. Always calculate this before refinancing or selling early.
Final Recommendation
If you want:
- Lower monthly payments
- Predictable budgeting
- Maximum savings
A closed mortgage is usually best.
If you need:
- Full flexibility
- Short-term ownership
- No penalties
Consider an open mortgage.
Every situation is different. A quick review can save you thousands. Call now +1 (604) 591-3590
Expert Advice You Can Trust
Navigating the BC real estate market is easier when you have an expert on your side. Asim Ali is a Principal Mortgage Broker who works for you, not the banks.
- 10+ Years Experience: Helping BC families secure their dreams.
- Award-Winning: Named “Best Newcomer Broker” in 2017 and a Top 75 Broker in Canada annually.
If you are ready to move or need assistance, our team is here to help, contact us now.