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Ricardo Gerarduzzi Financial AdvisorMutual Funds Investment Specialist
Financial Advisor
Mutual Funds Investment Specialist
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Understanding mortgage prepayment charges
When it comes to managing your mortgage, it’s important to understand any penalties or fees you may face. The following are instances when mortgage prepayment charges may apply.
Prepayment charges apply to closed mortgages when you:
- Pay out the mortgage prior to its maturity date
- Pay an amount greater than your allowable prepayment privileges
- Refinance your mortgage prior to its maturity date
- Transfer your mortgage to another lender prior to the maturity date
How much you’ll pay
Based on the type of mortgage you have, prepayment charges are calculated in different ways:
- Closed variable rate mortgage: three months’ interest on the amount being prepaid
- Closed fixed rate mortgage: the greater of either three months’ interest on the amount being prepaid or an Interest Rate Differential (IRD) amount (explained below)
- Open mortgage: no prepayment charges
If, at the time of prepayment, there are less than three months remaining before a closed mortgage matures, a per-diem prepayment charge applies for the duration of the remaining term.
Interest Rate Differential (IRD)
The IRD is the difference between your current interest rate and our current rate on a replacement mortgage based on the nearest lower number of years remaining on the term, multiplied by the amount being prepaid and then multiplied by the remaining term. Here’s what it looks like:
(Current Interest Rate – Replacement Rate) x Prepayment Amount x Remaining Term
Interest Rate Differential (IRD)*
The Interest Rate Differential (IRD) is the difference between your current interest rate and BlueShore Financials current interest rate on a replacement mortgage based on the nearest number* of years remaining on the term, multiplied by the amount being prepaid and multiplied by the remaining term.
(Current Interest Rate – Replacement Rate) x Prepayment $ Amount x Remaining Term
* Example: If there are 33 months left on the current term, the replacement rate is based on a 36 months (3 year) term.
Other potential charges
If you prepay your mortgage in full, a discharge fee will apply in addition to any prepayment charges. You can find all our fees here.
Talk to us
Your prepayment obligations are outlined in your mortgage documents; however, please do not hesitate to contact us for clarification or to work out exactly what your fees will be. Please call us at 604.982.8000 (toll-free 1.888.713.6728), send us a message, or visit a local branch.