An open mortgage is one with flexible options to increase your mortgage repayments, either by increasing your regular payments or via a lump sum. A closed mortgage, on the other hand, will penalize you for paying off all or part of your mortgage early. While prepayment penalties can be significant, closed mortgages also come with much lower interest rates than open mortgages.
In Canada, closed mortgages are more common because they offer lower interest rates, and most people don’t need the extra flexibility of an open mortgage. Open mortgages are generally used when you soon expect to receive additional cash to pay off your mortgage. This might be an inheritance, proceeds from the sale of a home, or a significant increase in your income.