Understanding mortgage prepayment charges
Your home is likely one of the largest investments you’ll make, and when it comes to managing your mortgage, it’s important to understand any penalties or fees you may face.
Depending on how you decide to manage your mortgage and your payments, there may be times when you have to pay additional charges.
The following are instances when mortgage prepayment charges may apply.
Prepayment on closed mortgages
Prepayment charges apply to closed mortgages when you:
- Pay out the mortgage prior to its maturity date (from sale or other)
- 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
Prepayment charges are calculated in different ways
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
- Open mortgage: no prepayment charges
Note: 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 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 lower 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 24 months (2 year) term.
Other potential charges
Discharge fee: If you prepay your mortgage in full, a $75.00 fee will apply in addition to any pre-payment charges.
Contact your Financial Advisor or our Solution Centre for assistance in estimating potential prepayment charges. Your prepayment privileges are outlined in your mortgage documents.
Additional mortgage advice
Please see the following articles for additional mortgage advice.