Variable rate mortgages
Most variable mortgages charge three months of interest to break. It is predictable and usually modest, which is one of the quieter advantages of a variable term.
Fixed rate mortgages
Fixed terms charge the greater of three months interest or an interest rate differential. The IRD compares your rate to a comparison rate the lender chooses, and which comparison rate they use changes the bill dramatically.
- Lenders using a posted-rate comparison usually produce the largest penalties
- Lenders using discounted rates produce smaller ones
- The more time left in your term, the larger the figure
- Prepaying the annual privilege amount first can shrink the calculation
Ways to reduce or avoid it
Porting the mortgage to your new property, blending and extending with the same lender, or timing the move near renewal can all reduce what you pay. Sometimes the penalty is still worth paying if the new rate saves more over the remaining years.
Run the comparison before you sign anything
Ask your lender for a written payout quote, then compare total cost of staying against total cost of moving. That single sheet answers the question far better than a rate quote does.
Frequently asked questions
- How do I find out my penalty?
- Request a payout statement from your lender. It is normally valid for a limited number of days.
- Is the penalty tax deductible?
- Not on a principal residence. On a rental property it may be, so ask your accountant.
- Can a new lender cover the penalty?
- Sometimes it can be added to a refinance if the loan-to-value allows. We can check that on your file.
Talk to a Toronto private mortgage specialist
We arrange equity-based financing across Toronto and the GTA, whether you need a first position from a private lender or a second mortgage behind the bank you already have.