Closed Mortgage explained
A closed mortgage locks you into a fixed term during which you cannot fully repay or refinance the loan without incurring a prepayment penalty. Most closed mortgages still allow limited prepayments each year, such as paying an extra 10% to 20% of the original principal or increasing your regular payment, but anything beyond those privileges or breaking the term triggers a charge.
In Canada, closed mortgages dominate because the trade-off favours most borrowers: in return for accepting limited flexibility, you get a noticeably lower interest rate than an open mortgage. The penalty for breaking a closed mortgage is typically the greater of three months' interest or the interest rate differential (IRD) on fixed-rate loans, and usually three months' interest on variable-rate loans.