Contributed by Marshall Tully
Most homeowners should expect to pay a penalty if they want to break their mortgage to get a better rate, sell their home, pay down the mortgage principal more than your prepayment allows or for a complete refinance. Homeowners in 5 year fixed mortgages often look to break their mortgage during their 3rd year for debt consolidation or to accommodate changing life circumstances. The penalty to break a mortgage is typically the greater of three months’ interest, or the interest-rate differential (IRD). With the IRD, your mortgage lender will want you to pay the equivalent of what they will lose by releasing you from your mortgage and lending the money at current rates. Unfortunately, not all lenders calculate IRD the same way so you should always get the actual penalty from your lender. Check your lender’s website for their prepayment penalty calculator. If you’re considering breaking your mortgage talk to a mortgage agent as they can perform a detailed, no obligation cost analysis for you. If you’re shopping for a new home, talk to an agent as they can present you with lenders whose penalties are much lower than the big banks.
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Marshall Tully | Mortgage Agent, 416.561.5432