It is estimated that approximately 60% of mortgage contracts are broken before the end of the agreed upon term. The simple explanation of this statistic is that Life Happens. Plans change, people change, finances change, and opportunities appear. Adapting to change is a crucial skill, but a difficult one to obtain in your arsenal. Let's briefly take a look at how you can better position yourself financially when it comes to potential change regarding your mortgage.

There are many reasons why someone might need to break their mortgage: moving, divorce, removing someone from title, to obtain a lower interest rate, utilizing equity, inheritance, etc. The type of mortgage structure, and the financial institution chosen, plays a role in the penalty you will incur for breaking the terms of your mortgage. A variable rate mortgage is often the safer choice when it comes to penalization. You are most likely subject to pay 3 months of interest to the lender. Example: $300,000 x 4% x 0.25 (3 months) = $3,000

Fixed rate mortgages can sometimes be tricker to get out of. Lenders can use an Interest Rate Differential (IRD) to calculate the penalty if that is greater than the 3 months of interest. Let's see an example of this using similar numbers as above. The situation is a $300,000 mortgage with 4% fixed rate discounted off the posted rate of 6%. You have 3 years remaining on your term but you are selling your home to relocate for work. Here's how the calculation could go: $300,000 x 0.11% (IRD) x 36 months = $12,240 penalty

Each lending institution can make these calculations differently so if you are considering breaking your mortgage it is best to speak to that institution directly to make the calculation. Be prepared and protected when setting up your next mortgage. Give me a call today!

Sam Ahier - Equity Care Mortgages 519-212-4480 Email: samahiermortgages@gmail.com