If you’ve ever broken your mortgage early, you know that figuring out the mortgage prepayment charge, or “penalty” as it’s commonly known, can be a hassle.
Until recently, mortgagors wanting to sell their home or refinance with another lender before maturity had to jump through hoops to get an accurate penalty quote. They typically had to call their lender and listen to a sales pitch as the lender tried to retain them as customers. Or, they’d speak with a poorly trained phone rep who couldn’t quote an accurate penalty to save their life.
A Solution at Last
In 2013, regulators finally came to the rescue…sort of. The Financial Consumer Agency of Canada (FCAC) asked all federally regulated lenders to create online penalty calculators, and most of them did. Unfortunately, most provincially-regulated lenders (i.e., credit unions) have refused to add them. Shameful!
In any case, most penalty estimators are not very intuitive. They require you to know specific mortgage details, such as the:
- Interest rate on your mortgage contract
- Mortgage term
- Posted rate at the time you got your mortgage
- Maturity date (or months remaining on your term)
- Appropriate comparison rate (i.e., the rate your lender can lend at today, for a similar length of time as that remaining on your mortgage contract)
- Current mortgage balance.
Most of this info is necessary, but some lenders still try to trip you up with frustrating questions that make you search through your mortgage contract needlessly. Fortunately, most of today’s penalty estimators are much more user friendly than in years gone by.
Mortgage Penalties in brief
Penalties are typically 3-months’ interest if you have a variable rate.
If you have a fixed rate, they’re usually the greater of 3-months’ interest or the interest rate differential (IRD).
Here are examples of each from the FCAC.
Exceptions to the Rule
A few lenders charge up to 3% of principal, or 6-12 months’ interest to break their mortgages early. Or, instead of normal discounted rates, some use artificially high posted rates (the Big 6 banks do this) or bond yields in their calculations. These unconventional methods can nail you with a penalty that’s far more than you ever imagined.
Canadian Mortgage Penalty Calculators
Below you’ll find calculators to estimate your penalty at Canada’s top lenders. If your lender isn’t listed, phone its customer service line to ask if it has an online prepayment charge estimator.
- Alberta Treasury Branches
- Affinity Credit Union
- Alterna Savings
- Assiniboine Credit Union (No calculator. Call 1.877.958.8588)
- B2B Bank
- Canadiana Financial Corp.
- Canadian Western Bank
- CFF Bank
- Conexus Credit Union
- Equitable Bank
- Envision Credit Union (No calculator. Contact your branch)
- First Calgary Financial (No calculator. Call 1.866.923.4778)
- Firstline Mortgages
- First National
- Home Trust (No calculator. Call 1.877.903.2133)
- ICICI Bank
- Industrial Alliance (No calculator. See this.)
- Investors Group
- Laurentian Bank
- London Life
- Meridian Credit Union (No calculator. Call 1.866.592.2226 )
- National Bank
- Peoples Bank
- Radius Financial
- RMG Mortgages (No calculator. Call 1.866.809.5800)
- Servus Credit Union (No calculator. See this.)
- Steinbach Credit Union (No calculator. Call 1.800.728.6440)
- Vancity (No calculator. Call 1.888.826.2489.)
- XMC (No calculator. Visit here.)
Some in this list are definitely better than others, but as you’ve mentioned we’ve come a long way from being forced to call our lender for some obscure figures in order to calculate the mortgage penalty. Thanks for putting this together.
Is there any banks or lenders paying your fees to break your mortgage early these days?
They’re hard to find unless you go through a broker. Brokers can mark up your rate and rebate you cash back
— which you can then use to offset your penalty and not be out of pocket.
It’s rarely a free lunch, however. If a lender/broker pays your penalty, you’ll almost always have to pay a higher rate to compensate.