Mr. and Mrs. Lee secured a closed mortgage on their new home in Grande Prairie. After two years into their five-year term, they receive an unexpected inheritance and wish to pay off their entire mortgage balance immediately. What financial implication will they most likely face due to their mortgage type?

Question: Mr. and Mrs. Lee secured a closed mortgage on their new home in Grande Prairie. After two years into their five-year term, they receive an unexpected inheritance and wish to pay off their entire mortgage balance immediately. What financial implication will they most likely face due to their mortgage type?

Answer options: ✅ They will incur a significant prepayment penalty.

• The lender will refuse early repayment until the term expires.
• They can only make a small additional principal payment without penalty.
• Their interest rate will automatically convert to the prime rate.

Correct answer: They will incur a significant prepayment penalty.

Explanation: A closed mortgage typically restricts prepayments or full payouts prior to the end of the term, often resulting in significant prepayment penalties. These penalties compensate the lender for the interest income they lose due to early repayment.