A closed mortgage simply has a number of restrictions. Closed mortgages will be highly advertised mortgages based off the RATE you are getting, but don't describe the contract you are gaining with the closed product. Closed mortgages normally have a portion or percentage you can pay off penalty free per year, and the remaining amount will be subject to a penalty. Not all penalties are calculated the same. Here at Castle Steinbach, we have developed a tool to visually show you the penalty structure you will be signing up for before you commit to your closed mortgage.
Most common penalties are:
1) 3 months of interest
2) 6 months of interest
3) Interest Rate Differential or IRD
4) A base penalty of 2.75% or 3.25% of the outstanding principle of your mortgage. (Newer penalty)
All penalties are openly disclosed with the "Standard Term Charges" you will sign at the lawyers office or at the local branch. Although you would think the education of this would be required at any of those 3 locations, it is a topic that needs to be paid attention to. There are significant costs to paying out a mortgage early, choose a product that won't steal your funds unexpectedly at the end.