Closed Mortgage

Quick Definition

A mortgage with limits on prepayment and penalties for breaking it.

Full Explanation

A closed mortgage limits how much extra you can pay each year and charges a penalty if you break it early. In exchange, rates are lower than open mortgages. Penalties are usually three months' interest or the interest rate differential, whichever is higher.

Related Terms

Open Mortgage

A mortgage you can repay in full at any time without penalty.

Interest Rate Differential (IRD)

A mortgage penalty based on the gap between your rate and current rates.

Prepayment Penalty

A fee charged by lenders when you pay off or break a mortgage before the term ends.

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