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November 18, 2015

Sometimes you need to break your current mortgage – life happens. Maybe you’re looking to capitalize on low rates and jump on them while they’re low, maybe you are considering relocating or upgrading your home prior to the end of your mortgage term.

You need to be careful when looking into your options when it comes to breaking your current mortgage contract. These are questions you should be asking your Mortgage Specialist.

What is your mortgage penalty?

In most cases you have to contact your existing lender to request a payout amount.  Each lender can have subtle differences in how they calculate your mortgage penalty. You should know exactly what your penalty will be in order to make the most informed decision.

How is your mortgage penalty calculated?

There are typically two kinds of mortgage penalties when it comes to breaking a mortgage: IRD (Interest Rate Differential) and 3 months interest.  If you have a fixed rate mortgage you will face the greater of the two, if you have a variable rate mortgage you should only face the 3 months interest penalty (which is typically the lesser of the two evils). 

Is your mortgage portable?

Having a mortgage that is portable will allow you to transfer your mortgage and rate to the next property you are looking to purchase.  This is a very nice option as it will result in not having to pay any mortgage penalties when you move.

Do you have a clause in your current mortgage?

Some mortgages today come with some extra clauses that could impact your options.  A couple of examples are a Bona-fide Sales Clause – which means you can’t pay off your mortgage during the term unless you sell your property.  Another could be a No Port Option – which means you can’t take the mortgage with you to a different property if you sell during your term.  These are two important clauses to consider if you think there is a chance you could move or want to pay off your home prior to the end of your term. 

Do my total savings outweigh the cost of the mortgage penalty?

Sometimes getting yourself into a lower mortgage rate doesn’t automatically mean savings.  When talking with one of our specialists we can calculate your savings vs your mortgage penalty and tell you if it’s the right move. 

If you are unsure about any of your options please give us a call and we can start guiding you through the process with the advice you need to make an informed decision. 

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