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Penalties when you break the mortgage early!

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  • Penalties when you break the mortgage early!

    Research has shown that over 83 percent of people break their mortgages early, resulting in mortgage penalties that sometimes far exceed the annual interest on a mortgage.

    People break their mortgages early for several reasons, including relocation, the end of a marriage relationship, loss of a job, to take equity out to invest elsewhere and for many other reasons.

    Mortgage penalties are calculated as follows:

    The three-month interest method: Here, you basically calculate the interest due on your next three mortgage repayments and pay the three-month total. Interest Rate Differential (IRD): The IRD is calculated by multiplying your mortgage balance by the difference between your original mortgage interest rate and the current interest rate that the lender can expect to charge upon reselling the mortgage.

    To protect yourself from high penalties,

    1. Read your mortgage contract thoroughly: Ensure you find out exactly what penalty you will be expected to pay in case you decide to break your contract early.

    2. Understand, and take advantage of pre-payment clauses: Pre-payment clauses allow you to pre-pay up to 20 percent of the balance of your mortgage annually without incurring a penalty. Pre-paying your mortgage allows you to significantly reduce the amount of your mortgage so that you can decrease the penalty you have to pay for breaking the contract.

    3. Ensure that the contract allows you to break your mortgage

    4. Enlist the help of the Ombudsman for Banking Services and Investments Office.

    5. Learn how to calculate the penalties yourself. Professionals offering services related to mortgage penalties in Canada could help you decide whether it is worth to break my mortgage contract early?
    Mortgage penalties are in place to protect the lender and ensure they recoup some of the funds they’re losing when you’re no longer paying them interest.

  • #2
    This is a UK forum and you're advertising yourself as a Canadian mortgage advisor... the British mortgage system and terminology are different from yours, even if there are some similarities.
    I am a Mortgage Advisor
    For further information and for tailored advice:
    [email protected]