Mortgage Penalty Shock

[TimLacroix]

** Mortgage Penalty Shock (http://cgymortgage.com/blog/Mortgage+Penalty+Shock%3A+Some+tips+to+help+soften+the+blow) **

Recently I have dealt with many Beyonder's who have had penalty challenges... primarily from the banks.

The typical shock is that more times than not, the penalty is IRD (Interest Rate Differential) with the bank. Reason for this is that the mortgage rates (in most cases) are based on a discount and therefore the discount factor is used to determine the penalty.

Example: 4.79% is todays posted 5 year rate... the offer is 2.99%... (discount is 1.8%) which matches most other broker or lenders. Assuming you break your mortgage with 3 years left... the bank will use the 3 year posted rate for calculations which today would be 3.75%.

Read More (http://cgymortgage.com/blog/Mortgage+Penalty+Shock%3A+Some+tips+to+help+soften+the+blow)

Lets assume $250,000 mortgage remaining:
Standard 3 month would be approx. $1,868.75 penalty
Bank IRD would be approx. $7,799

They are a couple of ways to avoid the penalties being high:
1 - Go Variable - the unfortunate thing is that variable is not for everyone and you need to qualify for it
2 - Talk to a broker and discuss the other lenders options

Not every rate is equal and neither is every lender... a strategy and solution go a long way...Read More (http://cgymortgage.com/blog/Mortgage+Penalty+Shock%3A+Some+tips+to+help+soften+the+blow)

[Sugarphreak]

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[TimLacroix]

Originally posted by Sugarphreak
My mortgage has a pretty heavy penalty if I decide to get rid of it early, however they offered a better interest rate and up to 20% re-payment per year option.

It is something you have to consider when signing onto a mortgage

:thumbsup:

Yes... knowing your options will hopefully save you some money.

Note: we do 2nd opinions, so if you have a mortgage approval and want to know what you might exactly be getting... we can help without pressure sales tactics.

:)

[flipstah]

Mine has a penalty as well if you leave the term early. It goes away if you port it to another property though.

Is there such thing as early payout penalty? Meaning you hypothetically win the lotto, pay it in full but get dinged?

[Sugarphreak]

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[msommers]

Don't most major banks offer mortgages with up to 15% repayment/yr without penalty, along with anniversery payments and miss a payment?

[oz388]

Originally posted by Sugarphreak
My mortgage has a pretty heavy penalty if I decide to get rid of it early, however they offered a better interest rate and up to 20% re-payment per year option.

It is something you have to consider when signing onto a mortgage

Why not just use line of credit? you can pay it off as fast as you want, and reuse the paid credit like cash. :poosie:

[TimLacroix]

Originally posted by flipstah
Mine has a penalty as well if you leave the term early. It goes away if you port it to another property though.

Is there such thing as early payout penalty? Meaning you hypothetically win the lotto, pay it in full but get dinged?

Great point... yes, penalties are refunded or reduced when you port a mortgage.

There is a penalty if you break/ leave a mortgage early... if in a closed term.

The lottery effect... still a penalty would apply but might be less of a concern with a lottery win... yahoo!!

[blitz]

In that case the 20% per year every year is your best option, mine was 20% of the original loan amount too, not remaining balance. You can put down 20% Dec 31 and 20% on January 1st.

[Tik-Tok]

Originally posted by TimLacroix
Mortgage Penalty Shock

It's more shocking to me, that people aren't reading their paperwork before signing when dealing with 1/2 million dollar contract (give or take) :nut:

[Sugarphreak]

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[TimLacroix]

Originally posted by msommers
Don't most major banks offer mortgages with up to 15% repayment/yr without penalty, along with anniversery payments and miss a payment?

Some banks are as low as 10%... most common is 20% prepayment privilege.

[Pacman]

With Royal Bank, I had the option to :

- increase my payments by 10%. This could be done each calender year (with the 10% going towards principal)
- double my payments (with the difference going to principal)
- 10% lump sum each calender year

All three of those could be combined.....so, you could pay off your mortage in 4 years if you did all of those things.