Open vs Closed Mortgage at Renewal in Alberta?
Short answer
Closed mortgages offer lower rates but limit prepayment and charge penalties if you break the term. Open mortgages let you pay off or switch anytime without penalty, but rates are higher. At renewal, choose open if you may sell or refinance soon; choose closed if you plan to stay for the full term.
The plain-English version
Most renewals are into closed fixed or variable terms of 1–5 years. Closed products include prepayment privileges (often 10–20% lump sum per year and increased payments) but penalize early discharge. Open mortgages — common as automatic renewal placeholders — charge a premium rate in exchange for flexibility.
Some borrowers take a 1-year open at renewal while shopping for a better closed deal. Others lock into 5-year closed for rate certainty. The right choice depends on your timeline, not just the rate spread on day one.
Alberta-specific considerations
- Alberta homeowners planning a job transfer between Calgary and Edmonton, or a divorce sale, may value open terms despite higher rates.
- Rental property owners who might sell within a year should compare open costs against closed penalties on their specific balance.
- Automatic renewals into open terms are common — use that window to shop without penalty, but do not stay on open rates longer than needed.
Example scenario
On a $275,000 balance, a 5-year closed fixed at 5.2% might be about $1,630/month. A 1-year open at 6.5% could be roughly $1,720 — about $90/month more, or $1,080 for the year. If you expect to sell within 12 months, paying $1,080 for flexibility may beat a closed mortgage penalty that could exceed $4,000.
Common mistakes to avoid
- Choosing closed for the lowest rate when you know you may sell mid-term.
- Staying on an open automatic renewal rate for months without negotiating or switching.
- Ignoring prepayment privileges on closed products that might cover your planned lump sums.
- Assuming all open mortgages are fully open — some have partial restrictions.