A closed mortgage is a mortgage term that is associated with a penalty. When a mortgage is a closed mortgage, the borrower(s) cannot break, prepay, or refinance without incurring a penalty. Some closed mortgages do allow for the borrower(s) to make a 10% to 20% prepayment toward the principal of their mortgage and also 10% to 20% increase in their monthly payments, which gets applied to the principal balance, without any applicable penaly.
A closed mortgage, as opposed to an open mortgage will often carry a lower interest rate.
The penalty for breaking/epaying/refinancing a fixed closed mortgage, is often 3 months interest payments or interest rate differential, the greater of the two. The penalty for breaking/repaying/refinancing a variable/adjustable closed mortgage is usually only 3 months interest payments.