Rates · open
Open Mortgage Rate
The rate on a mortgage you can prepay or pay off at any time without a penalty, typically priced at a premium to closed terms..
An open mortgage rate is the interest rate on a mortgage you can prepay or pay off at any time without a penalty. It is set the same way other Canadian mortgage rates are set — from the lender's funding costs, its posted rate and any discounted rate it applies — plus an adjustment for the flexibility the open feature gives the borrower. Because that flexibility costs the lender more, an open rate is normally higher than the rate on a comparable closed mortgage.
How an open mortgage rate is set
Short-term funding conditions in Canada begin with the policy interest rate set by the Bank of Canada. That rate flows through to the prime rate that banks publish, and prime is the base for most variable-rate mortgage pricing. An open variable mortgage is generally quoted as prime plus or minus a spread, while an open fixed mortgage is priced from Government of Canada bond yields of a similar term, plus a term premium and the lender's margin.
On top of that, lenders publish a posted rate and then apply a discounted rate for most borrowers. The gap between the two is negotiating room rather than a fee. An open feature is layered onto this pricing as a premium, because the lender cannot predict when the balance will be repaid and must fund the possibility of an early payout.
Where a published benchmark exists, it is a reference point rather than a quote. The Bank of Canada publishes a conventional mortgage rate series that tracks posted rates on five-year conventional mortgages at major lenders. It shows the direction and level of posted pricing over time, not what any individual borrower will be offered. Readers should check the current figure at the source.
Qualification is separate from pricing. Federally regulated lenders apply the federal mortgage stress test on top of the contract rate, using the greater of the contract rate plus a buffer or a published minimum qualifying rate. Those settings are set by the regulator and change over time, so confirm the current buffer before assuming a given payment is affordable.
Who an open mortgage rate typically suits
The open feature is bought for optionality. It tends to fit borrowers who expect a large lump sum — a bonus, an inheritance, the sale of another property, or the proceeds of a refinance — and want to apply it against the balance without a penalty. It also fits homeowners who plan to sell within a short window, who are bridging between properties, or who expect to restructure their borrowing soon after closing.
It suits borrowers who place a high value on certainty of exit rather than on the lowest possible interest cost. The trade-off is explicit: a higher rate in exchange for penalty-free flexibility. Where the probability of an early payout is low, the premium paid for the open feature is usually money spent for nothing. A comparison of the two structures is set out in this open versus closed guide.
How an open rate compares with adjacent terms
Open and closed are not separate products so much as two versions of the same mortgage. Both can be fixed or variable, and both carry a mortgage term and an amortization period.
| Feature | Open | Closed |
|---|---|---|
| Typical rate level | Priced at a premium to comparable closed terms | Generally lower for the same term length |
| Prepayment | Prepay or pay off in full at any time without a prepayment penalty | Limited to the prepayment privilege; a penalty applies beyond it |
| Common term lengths | Often short, such as six months or one year; longer open terms exist | Commonly one to ten years |
| Rate type | Fixed or variable | Fixed or variable |
| Cost of exiting the term | Typically no prepayment penalty | Penalty calculated under the lender's terms |
Renewal, prepayment, and paying it off early
With an open mortgage, paying the balance in full is usually penalty-free, which makes it a useful tool when a sale or a lump sum is already planned. Fees can still apply at payout, such as a discharge or administration fee to remove the mortgage from title, and those are not prepayment penalties. Confirm what is charged before committing.
At the end of the term, the lender will typically send a renewal offer. If the borrower does nothing, many lenders roll the balance into a new term, which may be closed, and the open feature can be lost. Review the renewal offer against alternatives and work through the mortgage renewal guide before signing. Switching lenders at renewal is often possible, subject to the new lender's approval, documentation, and any discharge costs.
What to check before choosing an open mortgage rate
- Confirm the open feature covers both partial prepayments and full repayment of the balance, not only one of the two.
- Compare the open rate against the closed rate for the same term length and consider how likely an early payout really is.
- Ask whether the mortgage is fixed or variable, and if variable, whether payments adjust with the rate or stay level while the amortization changes.
- Ask about discharge or administration fees that apply when the mortgage is paid out and removed from title.
- Ask whether the mortgage can be converted to a closed term later and how the rate is set at that point.
- Check the stress test treatment and total borrowing cost with a mortgage payment calculator before deciding.
Frequently asked questions
Is an open mortgage rate higher than a closed mortgage rate?
Generally yes. Because the borrower can prepay in full at any time without a penalty, the lender carries more uncertainty and prices the loan at a premium. A closed mortgage of similar length usually carries a lower rate but restricts prepayments and charges a penalty for breaking the term early. The right comparison is the rate difference against the probability that the flexibility will actually be used.
Can you pay off an open mortgage early without a penalty?
Typically yes. The defining feature of an open mortgage is that partial prepayments and full repayment can be made at any time without a prepayment penalty. Confirm with the lender that the open feature applies to the entire balance, and ask about any administration or discharge fee that may apply when the mortgage is paid out and discharged from title.
What term lengths do open mortgages come in?
Open mortgages are most commonly offered on short terms, such as six months or one year, though some lenders offer open terms of several years. Shorter open terms are often used when a borrower expects to sell, refinance, or pay off the balance soon. Ask the lender which open terms it offers and how the rate varies by term length.
Do you still have to pass the mortgage stress test with an open mortgage?
Yes. Federally regulated lenders apply the federal stress test to mortgage applications whether the mortgage is open or closed. Qualification is generally assessed at the greater of the contract rate plus a buffer, or a published minimum qualifying rate. The current buffer and floor are set by the regulator, so confirm the figures with OSFI or the lender.