Mortgage penalty calculator – MoneySense

In case you have a closed mortgage and determine to interrupt your mortgage contract earlier than the agreed-upon time period has expired, you’ll seemingly need to pay a prepayment penalty charge. A mortgage penalty calculator might help you determine precisely how a lot these charges will likely be and can make it simpler to know whether or not it’s price it to interrupt your present mortgage contract early.

What’s a mortgage penalty? 

Once you efficiently apply for a mortgage, you and your lender comply with a time period—the size of time your contract is in impact, which might vary from a number of months to 5 years or extra. If it’s worthwhile to break your mortgage contract earlier than the time period is up, your lender will often cost a penalty charge. The charge is usually generally known as a mortgage prepayment penalty. You might be charged a prepayment penalty if: 

• You make a bigger extra cost in the direction of your mortgage than your contract permits
• You determine to go along with one other mortgage supplier earlier than your mortgage time period expires
• You pay again your total mortgage quantity earlier than your time period ends (together with by way of the sale of your own home) 

What do mortgage penalties value? 

The mortgage penalty calculator estimates how a lot it could value you to interrupt your mortgage early. There are a number of things that decide how a lot of a penalty you’ll need to pay to finish your mortgage contract earlier than the time period ends, together with:

• Your present mortgage supplier and your province or territory of residence
• When your present mortgage began and the unique time period of the settlement
• The kind of charge (mounted or variable)
• Your present mortgage rate of interest
• The steadiness remaining in your present mortgage

Enter the data above into the mortgage penalty calculator to get an thought of what you may pay in penalties. Notice that the quantities are estimates based mostly on the lender, mortgage phrases and different related particulars. 

One of many key components figuring out how a lot you’ll pay in penalties is whether or not your mortgage has a variable or mounted charge. In case you have a variable-rate mortgage, you’ll probably pay three months’ curiosity in your mortgage steadiness. In case you have a fixed-rate mortgage, the penalty might be calculated two other ways, and you’re prone to pay the upper of the 2: both three months’ curiosity in your mortgage steadiness, or what’s generally known as the rate of interest differential (IRD)—a penalty based mostly on the distinction between your present mortgage charge and the speed the lender would use if lending the funds at present. 

When is it price paying the penalty? 

No matter quantity the mortgage penalty calculator offers you, remember the fact that in some instances, it could be beneficial to interrupt a mortgage contract. With the document low charges Canada skilled through the peak of the pandemic, you could have saved thousands of dollars even after factoring within the penalty charge. 

The essential factor is to calculate how a lot you’ll need to pay in penalty prices and evaluate it to what you would save over the course of your mortgage. Doing the maths is one of the best ways to make sure you make an knowledgeable and financially good move relating to whether or not or to not break your mortgage contract.

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About Sandra MacGregor

Sandra MacGregor has been writing about private finance, mortgages, investing and bank cards for over a decade.