What Are Mortgage Penalties?

Discharging your mortgage early can come with a cost. A lot of banks charge what is called an Interest Rate Differential: a calculation that has no uniform system or rule among lenders or regulation by the Bank Act.

They do this by comparing your interest rate to the banks current interest rate for the term closest to the amount of time left on your mortgage. So if you had two years and four months left on your mortgage, you would think the bank would be using their three-year rate. They don’t always do that. In many cases banks will use a lower rate, of one of the mortgage products that they are offering for the IRD calculation.

And there is no rule about which rate to use, they can use any rate they want. For example if there is a 2% difference between one- and five-year rates, there is a lot of room to manipulate the IRD. On a $450,000 mortgage, that 2% would cost you $9,000 in penalty interest.

Do I Need Mortgage Insurance?

Great question and one that really requires the advise of a licensed insurance professional. We can help you get that advise through our Canadian First Financial advisor who is also licensed in insurance. In the interim, why not take advantage of free, no obligation Mortgage life insurance (Creditor Life Plus) for the next 60 days while we get your mortgage in place. That way you can focus on the move and all of the details required in securing your new mortgage and home. Unlike bank creditor insurance this coverage is underwritten up front, is fully portable and the insurer is The Manulife Financial Insurance Company. In addition they offer very economical disability coverage. Canadians are vastly under-insured, especially young first time home buyers. This is a great way to get quick coverage and peace of mind until you are ready to explore further insurance coverage…and you can cancel at anytime. Talk to me about it when we review your mortgage commitment. It will only take about 15 minutes and coverage is virtually instant!