Mortgage Repayment Penalties: The Hidden Cost
The cost to break your mortgage July 25, 2013
Oliver A. Heimann, Investment Advisor, Mortgage Consultant, Invis
If you are thinking about possibly refinancing your current mortgage to a new mortgage and lock in at a new lower rate, consider the following.
Most homeowners should expect to pay a penalty if they want to break their mortgage to get a better rate 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 want to look at breaking your mortgage, we can review the terms and conditions of your mortgage and do an assessment of your situation to determine if your benefit outweighs the cost. There is no cost or obligation. Often penalties are rolled into the new mortgage so you don’t have to be out of pocket.
We are experts at providing the advice, education and resources that homeowners need. It pays to be informed, and we’re here to help!
DundeeWealth mortgages provided by Invis.
This article was prepared by Oliver Heimann who is an Investment Advisor with DWM Securities Inc., a DundeeWealth Inc. Company. This is not an official publication of with DWM Securities Inc. The views (including any recommendations) expressed in this article are those of the author alone, and they have not been approved by, and are not necessarily those of, with DWM Securities Inc.