Closed Mortgage
Quick Summary
A mortgage that limits early payoff and often charges a penalty if you break it.
ELI5 Explanation
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It’s cheaper day-to-day, but it can cost money to get out early.
Detailed Explanation
Most Canadian mortgages are “closed,” meaning you can’t freely pay the loan off at any time without penalties. The penalty depends on the lender and product (fixed vs variable) and can be meaningful if you refinance or sell before the term ends.
Example
You sign a 3-year closed mortgage and sell the home after 12 months; a prepayment penalty applies at payout.
Why It Matters
If your timeline is uncertain, the cheapest rate may become expensive after penalties.