Lesson 3: Why It’s Essential to Know Your Mortgage Penalty
Greg Williamson, Founder
22 March 2016
Not all mortgage penalties are calculated the same way…
Most of the banks base the penalty on the posted rate at the time when you signed your mortgage INSTEAD of your actual rate. This has a large impact on your penalty cost.
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80% of Canadians Don’t Finish Their Mortgage Terms:
Many people ask, “Why are there even penalties in the first place?”
When you return the borrowed money earlier than agreed (“break your term”), the bank has to find another borrower for the remaining term. Since this is difficult to do at the same rate, banks use the penalty to cover their loss.
However, the way these penalties are calculated is key. Review the diagram above and make sure to find out how your bank is calculating penalties – is it the “posted rate” (advertised rate) or is it the actual rate you got for your mortgage (discounted rate)?
And of course, if you want to skip the hassle of penalty calculations altogether — sign up to start the process with us, we’ve removed penalties entirely by covering the cost for you.
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