Breaking Your Existing Mortgage – Cost Vs Benefits

When mortgage rates are low, most start to look at breaking their existing mortgage and if it’s wise to do so to take advantage of the lower rates. However, in most cases, you will have a closed mortgage and will incur some type of a pre-payment penalty or charge. Bottom line is that your existing lender has committed to you for a specified period of time. If you pay them out early, they want to re-capture some of the lost revenue and re-investment costs.

If you have an open mortgage, it can be paid off at any time. If you have a closed mortgage, as most do, you should expect a pre-payment penalty of some type, depending on your lender and the terms of your mortgage.

So, is it worth it to pay off your mortgage and capture a lower rate? Simple answer is maybe. It’s math. We must calculate the penalty costs and compare them to the interest rate savings with the lower rate. You must be at even or ahead of the game within the amount of time of your existing term expiry.

Another factor to consider is where interest rates will be at expiry. There is no crystal ball, but if you feel that at expiry you could be faced with much higher renewal rates, then absorbing a pre-payment penalty may also be an option to consider.

Every situation is unique. We would be pleased to go through this with you and analyze the costs against the benefits. If the situation has merit, we can assist you through the process.

Call us at (905) 265-0246 or email us at mortgages@thefinancialforum.ca. Let’s get started.


What people are saying

" Thank you so much for all of your help and expertise (and patience) over the past year. We’re finally moved into our new home and settling in. Without your help, this wouldn’t be..."

T&J

View All