TL;DR
The best mortgage is not the one with the lowest starting rate. It is the one with the lowest total cost for your real timeline.
What open vs closed actually means
Open mortgages usually allow full prepayment without break penalties, but they commonly start with higher rates.
Closed mortgages usually offer lower rates, but early payout can trigger significant penalties depending on your contract and lender method.
Open vs closed: decision table
| Dimension | Open mortgage | Closed mortgage |
|---|---|---|
| Typical starting rate | Higher | Lower |
| Early payout flexibility | High | Limited by contract and penalty rules |
| Penalty exposure | Usually low for full payout | Can be material, especially on longer fixed terms |
| Best fit profile | Borrowers with near-term sale/refinance plan | Borrowers planning to hold full term |
| Most common mistake | Paying open pricing without needing flexibility | Ignoring break-cost risk when timeline is uncertain |
When an open mortgage is usually the right call
- You expect to sell, refinance, or repay in full within a short window.
- You are bridging a temporary phase and need clean exit flexibility.
- You are willing to pay a higher rate to avoid unknown break-penalty exposure.
- You want a short planning runway before moving into a longer-term strategy.
When a closed mortgage is usually the better call
- You expect to keep the mortgage for the full term.
- You value lower rate carry cost and can commit to the timeline.
- You have enough prepayment room for your plan within contract privileges.
- You reviewed worst-case break scenarios and they are acceptable for your risk profile.
Total-cost math: the framework most borrowers skip
Use this sequence instead of choosing from headline rates alone
- Estimate your realistic hold period.
- Model payment and interest cost for open and closed options.
- Add expected break cost under your most likely exit path.
- Compare total cost over the same timeline.
In many cases, closed is better when your timeline is stable. Open becomes rational when timeline uncertainty is high and break probability is meaningful.
Behavior traps that lead to expensive mortgage choices
| Mental model | Common mistake | Pragmatic correction |
|---|---|---|
| Anchoring | Choosing the lowest posted rate without timeline analysis | Decide from total-cost scenarios, not teaser rate alone |
| Present bias | Optimizing for this month while ignoring likely 12-24 month events | Use a written timeline with refinancing, move, and renewal milestones |
| Loss aversion | Avoiding open pricing even when break risk is high | Quantify expected penalty risk and compare against open-rate premium |
7-day open-vs-closed action plan
- Run rate comparison with your expected hold period.
- Estimate break risk using the penalty estimator.
- Model principal strategy in prepayment impact.
- Stress test renewal path with renewal compare.
- Create your dashboard account and save your scenario set for review with the broker team.
How this compares to nearby pages
- Fixed mortgage product: payment certainty focus.
- Variable mortgage product: rate-path and trigger-risk focus.
- Penalty and IRD explainer: break-cost mechanics.
- Penalty FAQ: quick practical answers.
Best next step
- Create your free account to save your open-vs-closed scenarios.
- Start pre-approval and lock your decision timeline.
- Estimate break cost before you commit to a closed term.
- Compare full-term cost across open and closed structures.
