The true cost of mortgage penalties is a common concern and complaint among homeowners so it seems reasonable to review it once again. 

Due to the sometimes complex calculations the banks use to determine this amount – consumers have been left in the dark when trying to make a decision on whether the cost of refinancing early is worth it or not. Recent changes and more to come will regulate the banks to provide more information up front and over the life of your mortgage on penalty costs. As a broker I always discuss the true cost of mortgage penalties with my clients to ensure we work with lenders that have best options for penalties if ending the term is a possibility for any reason.

The three possible options for a penalty. 

First, three months interest. 

Second, interest rate differential (IRD). 

Third, the difference between IRD calculations by the bank and other lenders.  Almost all of the major banks have a different IRD calculation than other lenders which can more than double and in some cases triple the penalty.  Knowing the exit cost of your mortgage is an important part of the decision in choosing a lender and many people don’t realize this until it is too late.

The majority of long-term fixed-rate mortgage holders terminate or change their mortgage before their term is up. In fact, the average five-year mortgage lasts only three to four years.

For more information on penalties and your mortgage options please give me a call!

Thank you!

Thank you Pauline Tonkin for your insight.