What is a closed mortgage?

A closed mortgage is characterized by its restriction on making early repayments without incurring penalties. This means that if a borrower wishes to pay off their mortgage before the end of the loan term, they will usually face a financial penalty. Closed mortgages are often offered at lower interest rates compared to open mortgages, making them attractive for borrowers who are certain they will not need to pay off their mortgage early.

This structure is beneficial for lenders as it ensures that they will receive a predictable stream of payments. Additionally, borrowers who are confident in their ability to maintain their mortgage payments may prefer the lower interest rates associated with closed mortgages. Understanding this fundamental aspect is crucial for anyone navigating the mortgage landscape, as it can significantly impact overall loan costs and financial planning.