Okay so you have a mortgage. Let’s face it, it’s a contract with terms, conditions, rights and obligations for both you and the lender. However, now for whatever reason you need or want to break the contract before the end of the term. Many mortgage lenders will allow this provided they are compensated. You have a rate of x.xx%, the best they can lend to someone else right now is 1% less so they want the difference, known as Interest Rate Differential or IRD. Seems fair right? Right. However, as is often the case, the devil is in the details. It is the method of calculating IRD that borrowers should be aware of as not all mortgages are created equal.
Let’s look at a couple of methods commonly used with what we Mortgage Brokers call “A” business. A or AAA business is where everything on the file makes sense, good credit, documented income and a normal residential type property. This is the vast majority of mortgage business on the books in Canada.