Unfortunately, most borrowers are not aware of the penalty charges if they want to break their mortgage before the term is over. The reason why you would want to break your mortgage could be buying another home or refinancing your property. There could be hefty prepayment penalties based on your mortgage contract. Prepayment penalties can cost thousands of dollars. It is important to know when they apply and how your lender calculates them. We advice that before you make this decision, you should review your mortgage contract with your lender / bank carefully.
What is a Prepayment penalty?
A prepayment penalty, also called breakage cost is charged by your mortgage lender in the following situations:
• If you pay more than the allowed additional amount toward your mortgage contract.
• If you break your mortgage contract.
• If you transfer your mortgage to another lender before the end of your term with the current lender.
• pay back your entire mortgage before the end of your term, including when you sell your home.
How much would you pay if you break your mortgage?
If you hold a fixed-rate mortgage, you are liable to pay three months interest or interest rate differential (IRD) whichever is higher depending on your lender and current market scenario. On the contrary, for a variable-rate mortgage, you are expected to pay the equivalent of three months’ interest in most scenarios.
Moreover, breaking your mortgage early could result in certain expenses that you must cover as a homeowner, such as an Administration fee, Appraisal fee and Re-investment fees (if you are looking to buy a new home). Prepayment penalties can vary depending on your lender, mortgage agreement and time left in the mortgage contract’s current term, as we stated above.
How can you avoid penalty charges for breaching your mortgage contract?
• Review your mortgage documents diligently before signing them.
• Make sure you discuss prepayment clauses with your lender.
• You can port your mortgage if you want to buy another house.
• You can opt for blend and extend mortgage option that allows you to keep current mortgage balance amount at same rate and additional new mortgage amount at current market rate.
Why would you pay mortgage penalty?
• Your financial situation has changed.
• Interest rates have gone down.
• You want to buy a new house and relocating.
• You want to refinance to pay high interest debts or take-out equity.
• Your current home does not meet your needs.
• You have got a cash flow and wish to pay off the mortgage to save interest.
To sum up, before breaking your mortgage contract, make sure you educate yourself about the penalties and extra fees that come with your mortgage. We would recommend you read the prepayment clauses prudently, then make the best possible financial decision. It is always favourable to consult with a knowledgeable broker who can smoothly walk you through the process and understand the rules and regulations if you break your mortgage contract.
Why choose us-
As a leading Mortgage Brokerage, we have strong relations with multiple banks and numerous lenders. We work with Canada’s leading lenders to provide you a mortgage solution that fits your budget. Our mortgage and financing process is amazingly simple, we represent you and match you with the best suited mortgage as per your needs. This way we can guide you through this complicated process with our years of mortgage financing experience.
• We are dedicated and professional Accredited Mortgage Brokers in GTA.
• We are well trained and have experience in the mortgage financing field more than 10 years.
• We can shop around with different lenders to get you the best possible mortgage rates and conditions as well.
• We have different options for different income and credit level with access to number of private lenders to suit borrower’s needs.
We are a professional mortgage broker in GTA. We can help you secure a mortgage with best mortgage interest rates. We are located at 2896 Slough Street, Unit # 6, and Mississauga, ON L4T 1G3. Call MB Mortgages Inc. today at 905-458-6929/416-939-7131 for your queries or you can email us at: firstname.lastname@example.org or you can visit our website at www.mbmortgages.ca
The information provided in this blog post is intended to provide general information. You should consult with a mortgage professional to fully determine the scope of your situation. MB Mortgages shall not be held liable from usage of the information provided on this page. Individual situation may vary.