DEFINITION of 'Closed-End Mortgage'

A restrictive type of mortgage that cannot be prepaid, renegotiated or refinanced without paying breakage costs to the lender. This type of mortgage makes sense for homebuyers who are not planning to move anytime soon and will accept a longer term commitment in exchange for a lower interest rate. Closed-end mortgages also prohibit pledging collateral that has already been pledged to another party.

Also known as a "closed mortgage".

BREAKING DOWN 'Closed-End Mortgage'

A closed-end mortgage can have a fixed or variable interest rate and, along with open and convertible mortgages, is common in Canada. An open mortgage can be repaid early but will have a higher interest rate, while a convertible mortgage blends characteristics of closed and open mortgages.

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