Life can change quickly. A new job, a growing family, a move to another city, or a shift in financial priorities can all lead you to consider breaking your mortgage before the term ends. While there can be good reasons to make this move, it is important to understand the potential costs and how they are calculated.
At Canadian Mortgage Professionals, we believe in helping you see the full picture so you can make informed decisions about your mortgage.
Why Would You Break a Mortgage Early?
Some of the most common reasons our clients consider ending their mortgage term before it matures include:
- Selling your home before the mortgage term is complete
- Refinancing to take advantage of a lower interest rate
- Accessing equity for renovations, investments, or debt consolidation
- Changing mortgage terms to better fit your financial situation
In some cases, the benefits outweigh the costs. In others, the penalties can be significant enough to make waiting the smarter choice.
How Mortgage Penalties Are Calculated
When you break your mortgage early, lenders typically charge a prepayment penalty. This fee compensates the lender for the interest they expected to earn over the remaining term.
The amount depends on your mortgage type and lender policies:
- Fixed-rate mortgage penalty
Usually the greater of:- Three months’ interest, or
- The Interest Rate Differential (IRD), which compares your current rate to the lender’s posted rate for the remaining term. The IRD often results in a much higher penalty than three months’ interest.
- Variable-rate mortgage penalty
Typically three months’ interest.
The Hidden Costs to Watch For
Beyond the main prepayment penalty, there can be other costs, such as:
- Discharge fees for removing the mortgage from your property title
- Administration fees charged by your lender
- Appraisal fees if refinancing with a new lender
- Legal fees for processing the new mortgage
When Breaking Your Mortgage Might Make Sense
Breaking a mortgage early can still be a smart move if:
- You are securing a much lower interest rate and will save more in interest over time than the cost of the penalty
- You are consolidating high-interest debt into a lower-rate mortgage
- You are moving to a new home and can port your mortgage to avoid some or all penalties
- You need access to your home’s equity for major expenses or investments
How Canadian Mortgage Professionals Can Help
We take the time to run the numbers with you so you can clearly see whether breaking your mortgage is in your best interest. Our process includes:
- Reviewing your current mortgage terms and lender penalty calculation method
- Comparing the costs of breaking versus staying in your mortgage until maturity
- Exploring options like porting, blending, or extending your mortgage to reduce penalties
- Helping you understand all fees and timelines before you make a decision
Our goal is to ensure you have all the information needed to choose the path that benefits you most in the short and long term.
Final Word
Breaking your mortgage early is a significant decision that can come with costs you might not expect. By understanding how penalties work and exploring all your options, you can avoid surprises and make a choice that supports your financial goals.
At Canadian Mortgage Professionals, we are committed to providing the clarity and guidance you need—so your mortgage works for you, not against you.
[email protected]
403-509-2434
www.canadianmortgagepro.com
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