What Is A Pre-Payment Penalty?


When you sign up for a mortgage agreement, you decide on the term of your mortgage.  There are many choices ranging from 1-10 years.  In Canada, the most popular term is the 5-year term.

Statistics prove that 60% of Canadians in a 5-year term brake their mortgage at an average of the 36-month mark, triggering a pre-payment penalty. 

What triggers this penalty?

A sale of the home, refinancing to consolidate debts, pulling equity from the home, renewing into a better rate are all actions that would trigger a pre-payment penalty midterm.

The pre-payment penalties vary from lender to lender so it’s important you understand the penalties before you sign as there is a 60% chance you will pay this penalty. (Assuming you choose the 5-year term)

Variable Mortgage – 3 months interest

Fixed Mortgage – the greater of 3 months interest or the Interest Rate Differential (IRD) calculation.

Feel free to contact me anytime for more info.