Breaking your mortgage is more common than you might think. In fact, about 66% of Canadians will break their mortgage before the end of their term. You may need to break your mortgage if you are looking to move, are refinancing to consolidate debts or are planning to take out equity to purchase an investment property. When you break your mortgage before the end of the term, lenders will charge you a penalty called a prepayment penalty.

Prepayment penalties differ from lender-to-lender, and depend on a few factors, namely:

• If you are in variable or fixed mortgage
• The remaining term with that lender
• If you have chosen a “low rate” product that offers a slightly lower rate but comes with very high penalties should you break
• If that lender has posted rates or not

Some lenders even offer products that have a “bonafide sales clause” in the fine print, meaning that you cannot break your mortgage unless you sell your house. These products are sometimes offered by low-rate websites and will cause you a world of stress if you are looking to pull equity out of your home. I also have access to these “low rate” products but would never recommend them. 

The best thing to do when searching for a mortgage is to understand the type of prepayment penalty that will be charged should you need to break your mortgage. You may hear terms like “IRD” or “Interest Rate Differential”, “3 months interest”, “bonafide sales clause” or “high interest penalty”. I will always take the time to explain these terms and what it means for you if you needed to break your mortgage early. One thing to note is that a specific penalty is impossible to calculate two or three years into the future as the penalties depend on the rates offered by your lender on the day of breaking, as well as how much time you have remaining in your term.

If you are looking to break right now, you can estimate the penalty using one of the calculators below – just find your lender and you will be taken to their official calculator. Not all lenders publish their prepayment calculators and some calculators are challenging to navigate, so if you would like a specific penalty amount, always call your lender directly and ask for the prepayment penalty. 

For your convenience, I have included those calculators and numbers below, and as always, if you need some trusted advice on what to do, I am just a call away.