What are the implications of closed mortgages?

Closed mortgages typically come with substantial penalties for early repayment, making this the correct choice. The structure of a closed mortgage means that if the borrower decides to pay off the mortgage balance before the end of the loan term, they will likely face significant financial penalties. These penalties can take the form of prepayment fees, which compensate the lender for the loss of interest income they would have earned if the mortgage had remained in place for the full term.

This feature contrasts with open mortgages, where borrowers can pay off the entire loan without incurring such penalties, allowing for greater flexibility. While closed mortgages may offer lower interest rates compared to their open counterparts as a trade-off, the main implication lies in the penalties associated with early repayment, making borrowers think carefully about their ability to pay off the mortgage early.

The options that imply higher flexibility in payment options and no penalties if paid off early are characteristics associated with open mortgages rather than closed ones.