Mortgage Penalties and Prepayments: What to Check

Selling, refinancing or paying off your mortgage early can come with a penalty. Know the rules before you need them.

The short answer: An online penalty calculator only gives you a rough idea. Your lender's formula and your payout date decide the real number. Get a written payout quote before you commit to a sale or refinance.

Prepayment privileges

Most closed mortgages let you pay extra each year without a penalty, up to a limit. Check your contract for:

How much you can pay as a lump sum each year
How much you can raise your regular payment
Whether the limit resets on the calendar year or your mortgage anniversary
How the penalty is calculated if you pay it off early
Portability, and how long you have to move it to a new home

Unused privileges usually don't carry over.

How penalties are calculated

Variable mortgages usually charge three months' interest. Fixed mortgages often charge the higher of three months' interest or an interest rate differential (IRD), and IRD formulas vary a lot between lenders. Ask for a dated, written quote, not a ballpark.

Portability isn't a sure thing

Porting can let you take your mortgage to a new home and avoid a penalty, but it still needs lender approval and has deadlines. Get the details in writing: how much time you have between selling and buying, and what happens if you need to borrow more or less.

Run the break-even

Thinking of breaking your mortgage for a better rate or to consolidate debt? Compare what you'll save over the time you plan to keep the mortgage against the penalty and all the new costs. Sometimes it's worth it, sometimes a second mortgage makes more sense. We run both.

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Let's talk it through

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Alberta: 587-900-0036 | BC: 604-200-3228

These guides are general information, not a mortgage offer or personal advice. Every approval depends on lender review of your income, credit, property and documents. Elevate Lending, powered by BRX, serves clients in Alberta and British Columbia.