# What are the common pitfalls in 'Closed' mortgage contracts?

> The 'Bona Fide Sale' clause is the main pitfall — most closed mortgages only waive the penalty for an arm's-length sale, not a refinance or family transfer.

Category: Product Mechanics
Last verified: 2026-02-18
Source: https://ratellow.com/faqs/product-mechanics/what-are-the-common-pitfalls-in-closed-mortgage-contracts

## Answer
| Item | Open Mortgage | Closed Mortgage |
|------|---------------|-----------------|
| Rate | Prime + 1-2% | Prime - 0.5-1% |
| Penalty | $0 | IRD / 3-Months |
| Flexibility | High | Restricted |
| Best For | Sellers / Flippers | Long-term Owners |

## Related guide
- https://ratellow.com/guides/open-vs-closed-mortgages

## Sources
- BANKOFCANADA — https://www.bankofcanada.ca/2023/12/staff-analytical-note-2023-19/#Introduction