Atlanta Homes for sale

Price
Beds
Baths
For Sale / All Types

Mortgage Penalty

A mortgage penalty is the fee you pay if your break your mortgage contract early. This mortgage breakage penalty is intended to compensate for the lender’s lost revenue.

What Is A Mortgage Penalty?

What Is A Mortgage Penalty?

Reasons for breaking a mortgage

Breaking a mortgage is not uncommon in Canada. The Canadian Association of Accredited Mortgage Professionals reports that 9 per cent of Canadians choose to refinance their mortgages before their term is up. Switching mortgages for a better rate is one of the most common reasons Canadians break their mortgages, though selling your home during your mortgage term will also incur this penalty.

Before you consider breaking your mortgage, make sure you know what your penalty will be. In some instances, this penalty will be greater than the money you save with better mortgage rates. Some mortgages stipulate that you cannot break the mortgage unless you sell, so you will be unable to switch lenders at any time without paying the mortgage penalty.

It’s therefore essential that you consider all possible fees and penalties before you sign your mortgage. Can you make prepayments? You may also be charged a fee if you change lenders when your mortgage term matures, so be aware of this before signing.

How much is the mortgage penalty fee?

The mortgage penalty fee depends on what type of mortgage you have. If you have a variable rate mortgage, your penalty fee will be 3 months’ interest. If your mortgage is a fixed rate mortgage your fee will be either 3 months’ interest or the interest rate differential (IRD), whichever is the highest.

This IRD may be calculated over your mortgage term, or may be calculated on the amortization length of your mortgage. Make sure you know how your lender calculates the IRD when considering your mortgage options.

Open mortgages and closed mortgages

There are, of course, no penalties for breaking an open mortgage. Open mortgages have higher rates, but give you the financial flexibility of making prepayments and paying off your mortgage before the end of the mortgage term.

If you break a closed mortgage, you will have to pay a mortgage penalty. Closed mortgages cannot be repaid or refinanced until the mortgage makes maturity. But this lack of flexibility is tempered by the lower rates when compared to an open mortgage. The borrowers who want short term financing will still save money by choosing a closed variable rate mortgage and paying a penalty if they pay out early.

How to avoid a mortgage penalty

You have a better chance of avoiding mortgage penalty fees if you make sure your mortgage allows you to make prepayments. Many lenders permit borrowers to pay up to 20 per cent of their mortgage once per year. This sum is applied to your mortgage principal, and would reduce your interest costs. Always make sure to read your mortgage contract.

If you’re considering refinancing and would be subject to a mortgage penalty, you should take advantage of your prepayment options. Any mortgage penalty will be lower if your principal is reduced.

Prospect Sellers

If you are thinking of selling your house in Atlanta, contact us today, we can visit with you at your house and we will give you an honest opinion on what needs to be done before you list your house for sale. Our construction company can give you a free estimate on any work that needs to be done. Find out what is the current price of your home for free, contact our team at 770-309-6417  to get your free market analysis of your home and sell your home with confidence. Our agents can also help you determine if the house needs any repairs or updates in order to get the best possible price. Call us today.

Foreign Real Estate Investors: How to Purchase Real Estate in the USA?

Telmo Bermeo Real Estate Broker

About Telmo Bermeo

Small Business Owner, specializes in marketing homes for sale in the Atlanta Area by using the most up to date Internet Marketing Tools.

Real Estate Broker serving the Atlanta Metro Area, for over 12 years. If you are planning to buy or sell your home in Atlanta, call Telmo Bermeo at 770-309-6417

Atlanta Real Estate Information

Here is the Top Real Estate Markets in Georgia

Atlanta Homes for Sale | Alpharetta Homes for Sale | Marietta Homes for Sale | Sandy Springs Homes for Sale | Decatur Homes for Sale Roswell Homes for Sale Lawrenceville Homes for Sale | Kennesaw homes for sale

Atlanta Homes for Sale

linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram