Closed mortgage (also known as ‘Closed-End Mortgage’) is the type of mortgage which doesn’t provide the flexibility of making prepayments without incurring a penalty. Once the agreement is made, one cannot renegotiate or refinance the mortgage for that term. Even though it is a restrictive type of mortgage, yet it is the most common type of mortgage in Canada. In closed mortgage, if an individual pays off the mortgage before the end of the mortgage term then the individual will have to pay a penalty. Pre-payment options in a closed mortgage are:
- Pay up to 20% of the original mortgage annually
- Double your payment option
- Increase your monthly payments up to 20%.
- An individual plans to live in the home for the length of the mortgage term
- No expectation by the individual in getting any extra money to make additional payments
- An individual likes consistency for budgeting
- An individual is not comfortable with a potentially fluctuating interest rate.