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eHomes Blog

Breaking Your Mortgage

Fire Prevention Planning

By Brian Mill, B.A., CFP, AMP
Neighbourhood Dominion Lending Centres

With mortgage rates still hovering at historic lows, chances are you’ve considered breaking your current mortgage and renewing now before rates begin to rise.

Perhaps you want to free up cash for such things as renovations, travel or putting towards your children’s education? Or maybe you want to pay down debt or pay your mortgage off faster?

If you’ve thought about breaking your mortgage and taking advantage of these historically low rates, feel free to give us a call or send us an email to discuss your options.

In some cases, the penalty can be quite substantial if you aren’t very far into your mortgage term, but we can determine if breaking your mortgage now will benefit you long term.

People often assume the penalty for breaking a mortgage amounts to three months’ interest payments so, when they crunch the numbers, it doesn’t seem so bad. In most cases, however, the penalty is the greater of three months’ interest or the interest rate differential (IRD).

The IRD is the difference between the interest rate on your mortgage contract and today’s rate, which is the rate at which the lender can relend the money. And with rates so low these days, the IRD tends to be greater than three months’ interest. Because this is a way for banks to recuperate any losses, for some people, breaking and renegotiating at a lower rate without careful planning can mean they come out no further ahead.

Keep in mind, however, that penalties vary from lender to lender and there are different penalties for different types of mortgages. In addition, the size of your down payment and whether you opted for a “cash back” mortgage can influence penalties.

While breaking a mortgage and paying penalties based on the IRD can result in a break-even proposition in the short term, if you look at the big picture, you’ll see that the true savings are long term – as we know that rates will be higher in the years to come. Your current goal is to secure a long-term rate commitment before it’s too late, and here lies the significant future savings.

As always, if you have questions about breaking your mortgage to secure a lower rate, or general mortgage questions, I am here to help!

Bill Stobbe

Born and raised in Owen Sound, Bill spent nine years in Toronto working in the advertising and marketing industry. In 1998, Bill returned to his roots to be close to family and to raise his own family. Bill has been helping his valued clients buy and sell real estate since 2003 and has been a consistent top producer in the office. In 2012, Bill left his previous brokerage and started eHomes Realty to address the needs of the ever-changing real estate industry. eHomes Realty is a fast growing, full service brokerage that embraces the latest technologies to streamline the real estate process and in turn, provide relief to sellers with lower commissions. The real estate industry is changing and eHomes Realty is leading the way. For honest, friendly service, give Bill a call for all of your real estate needs.

Bill Stobbe, Broker of Record

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