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Mortgage Penalty Calculator

Thinking of breaking your mortgage agreement early? It could cost you. If you are looking to refinance or pay off your mortgage early, use your Mortgage Penalty Calculator to determine the possible costs.

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Breaking Your Mortgage: Top 5 Frequently Asked Questions

  • When should I break my mortgage?

    There can be several valid reasons for breaking or refinancing your mortgage, for example moving to a larger home, taking advantage of cheaper mortgage rates, or simply paying your mortgage off early. However, terminating your mortgage contract before your term has expired will result in a penalty from your mortgage lender. It’s important to determine whether the resulting savings will be greater than the penalty you’ll be charged. As well, you must have a minimum of 10 per cent equity in your home in order to qualify to refinance your mortgage.

  • What’s the difference between a fixed-rate mortgage and variable-rate mortgage penalty?

    Penalties are calculated differently depending on the type of mortgage term you have.
    A fixed-rate mortgage penalty is calculated using either the interest rate differential, which is the difference between your original interest rate and the current interest rate charged if the lender was loaning the funds out today for the rest of the term, or three month’s worth of interest - whichever is higher.
    By contrast, breaking a variable-rate mortgage will cost three months of interest.

  • Should I break my mortgage because there are lower mortgage rates available?

    It can be tempting to switch to a lower mortgage rate, especially with some of the record-low deals available on the Canadian market! However, it’s important to determine whether the savings from paying a lower rate will outweigh the penalty costs. It’s also important to consider additional features offered by the mortgage, and whether they’re a good fit for your financial situation.

  • What mortgage features will provide flexibility and save me money?

    Some mortgages offer flexible features that can help save money if you decide to end your term early. For example, prepayment options offer the ability to make large lump sums or accelerate payments in order to pay the mortgage off early and save on total interest paid. A portable mortgage can be moved from one home to another, while an assumable mortgage can be taken on by a new buyer if you sell your home. Be sure to ask your lender or mortgage broker about these features, especially if you’re not sure if you’ll need to move or sell your home before your term is up.

  • Should I consider an open mortgage?

    An open mortgage is designed to be paid off early without penalty. They are shorter-term mortgages, ranging from six months to one year for fixed terms, and three to five years for variable terms. An open mortgage can be a good option for those who have the ability to pay their mortgage in full, or expect to receive a large sum of money in the future. Some open mortgage products can also be converted to a closed mortgage if necessary.

Key Terms To Know

  • Amortization

    The total length of time required to pay off your mortgage. The maximum time limit in Canada is 25 years.

  • Mortgage Term

    The length of a mortgage rate contract. The most popular length of time is five years.

  • Open Mortgage

    A mortgage that is designed to be paid off without penalty before the term reaches maturity. These mortgages are generally shorter-term.

  • Closed Mortgage

    A mortgage that cannot be paid off early without resulting in a lender penalty. However, closed mortgage terms can be longer than open options.

  • Interest Rate Differential

    The difference between your original interest rate and the current interest rate charged if the lender was loaning the funds out today for the rest of the term.

  • Prepayment Options

    Mortgage features that allow the owner to increase the frequency of payments, or make several large payments, toward the mortgage in order to pay it off faster.

  • Lump Sums

    A large payment toward the mortgage principal, decreasing the total amount owed and shortening the overall mortgage amortization.

  • Accelerated Payments

    To increase the frequency of mortgage payments each month. Accelerated payments can be bi-weekly, weekly, or bi-weekly accelerated.

  • Portable Mortgage

    A mortgage that can be transferred from one property to another.

  • Assumable Mortgage

    A mortgage can that be taken over by a new buyer when the original mortgage holder sells their home.

  • Fixed Mortgage Rate

    A mortgage rate that is guaranteed for the duration of the mortgage term, often considered to be the most secure type of mortgage.

  • Variable Mortgage Rate

    A mortgage rate that is based on the lender’s Prime rate, and can fluctuate during the mortgage term if the Prime rate changes.

  • Prime Rate

    The best price of borrowing offered by a bank. Commercial banks offer this rate to their best borrowing customers. In turn, they set their Prime rates based on the central, or Overnight Lending Rate, set by the Bank of Canada.

  • No Frills Mortgage

    A mortgage that does not offer additional features or payment flexibility.

  • Refinancing

    To break a mortgage before the term has matured in order to switch to a new mortgage rate.

  • Renewing

    To renegotiate the mortgage rate and term when the original term matures.

  • Mortgage Principal

    The remaining mortgage amount, not including interest charged.

  • Property Value

    The total resale value of a home and property

  • Blended Mortgage Rate

    A combination of your present mortgage at its existing rate with any additional money you borrow at the current rates.

  • Equity

    The amount a homeowner has paid toward their mortgage vs. what they still owe.

  • Equity

    The amount a homeowner has paid toward their mortgage vs. what they still owe.

  • Refinancing Qualification

    You must have a minimum of 10 per cent equity in your home before qualifying for a mortgage refinance.