Breaking a Fixed Mortgage in Canada: What You Need to Know
Explore key considerations before breaking your fixed mortgage in Canada. Understand penalties, options, and strategies for a smooth process.
Thinking About Breaking Your Fixed Mortgage?
If you've ever found yourself considering breaking a fixed mortgage, you're not alone. Many homeowners in Canada reach a point where they weigh the potential benefits of switching their mortgage terms against the associated costs and penalties.
Why Break a Fixed Mortgage?
Breaking a fixed mortgage can seem daunting, but sometimes, life's changes or unexpected financial benefits make it necessary or even advantageous. Maybe you've found a better interest rate with another lender, or perhaps you're planning to sell the house sooner than expected.
Understanding the Costs
The key concern when breaking a fixed mortgage is the penalty incurred. Typically, you may face either a three-month interest fee or an interest rate differential (IRD), whichever is higher.
- Three-Month Interest Penalty: This involves paying three months' worth of interest based on your current mortgage.
- Interest Rate Differential (IRD): A potentially more costly calculation based on the difference between your original mortgage rate and the current rate for the remaining term.
Exploring Your Options
Take my friend Amy, for instance. She wanted to break her mortgage because she found a great job in another city. Her mortgage advisor offered some alternatives that are worth considering:
- Porting Your Mortgage: If you're buying a new home, this lets you transfer your existing mortgage to the new property.
- Blending and Extending: Some lenders offer to blend your current rate with new terms, smoothing out penalties.
Strategize and Plan Ahead
Break-ups are never easy, not even with mortgages. Analyze your situation comprehensively and pinpoint the right strategic moves. Consulting with a mortgage advisor can provide clarity and may unleash benefits you hadn't considered.
Is Breaking Your Fixed Mortgage the Right Move?
Everyone's circumstances are unique. Whether it's for a financial perk, relocation, or personal reasons, thoroughly considering the pros and cons is essential.
What are your thoughts? Is breaking the mortgage worth the cost for your situation?
