Hello Mariah, there often will be a penalty to break your mortgage with the lender you are with. Unless you have an open mortgage which does not carry a penalty to break. If you are not sure if you have an open mortgage or closed mortgage, chances are you are in a closed mortgage. (Open mortgages have higher interest rates and are not often offered by lenders unless the client specifically asks for them due to the chances of breaking the mortgage) The exact calculations vary from lender to lender and are spelled out in the terms of the mortgage agreement you received when you set up your mortgage to begin with. The basics are as follows. For a variable rate mortgage you will most likely be charged 3 months interest penalty (The next 3 months interest due on your mortgage payments basically). If you have a fixed mortgage rate then things get tricky. You will be charged 3 months interest penalty or Interest Rate Differential (IRD). The first is the same as before but IRD is a whole different animal. It can get quite costly and is designed to prohibit movement of the mortgage to another lender due to a better rate environment. If the rates in the marketplace are higher than the rate you currently have on your mortgage you will be most likely charged the 3 month penalty. If the rate environment is such that rates are lower than what you have currently the IRD is often charged. The IRD calculates how much money you will save at today`s rates on your current mortgage balance and remaining term and charges you roughly that amount to break. In this way clients don`t jump ship when the rates get better. The calculations are not perfect however and many of my clients have broken their mortgage and taken it to another bank even though they are not selling or moving. Just how much you save varies on your specific mortgage and the rates available. Only specific calculations to your current mortgage situation can tell you if it makes sense for you. I hope this information has been helpful Mariah, I would be happy to do some calculations for you or any reader, no obligations. Please do not hesitate to call. Abraham Niyazi - Mortgage Agent - Lic#M08010640 - Centum One FInancial Corp - Lic 10758. Cell: 416-993-4082 Toll Free: 1-866-728-3708 x 115 www.centum.ca/abraham_niyazi/ I deal with 25 Lenders/Banks and can do mortgages across Canada except Quebec.

Yes, there is a penalty to break your mortgage before term is up. However there is no penalty for selling your home. You can sell your home and move to another one, then you can port your mortgage to the new property and avoid the high penalty for breaking the mortgage.

Powered by

Assuming you moved because your job moved you, can you claim the penalty fee paid to the bank for ending your mortgage as a moving expense on your income tax return. if you can claim it, how much can you expect to get back?

Assuming that you qualify (Your new home must be at least 40 kilometers closer to the new place of work) then yes, mortgage penalty is an eligible moving expense. How much you get back depends on what tax bracket you are in, but it would be at least 20% of the total moving expenses.

Powered by

I'm in a 5 year fixed mortgage with royal bank and have less than 2 years left in this term. i'm interested in buying a new house, and the bank told me it would cost $12,000 to break my current mortgage. i want to go with scotiabank and ask them to pay off my penalty. do you think they would do this?

A new lender will only lend mortgage funds based on the value of the property being purchased. You signed for a mortgage loan that has a prepayment penalty, therefore, if you refinance you current mortgage loan you have to pay the lender a penalty. Your new lender will not take on your prepayment penalty responsibility. I hope this has been of some benefit to you, good luck. "FIGHT ON"

Powered by

My wife bought her condo before we were married. i now have military pcs orders out of the state. she has a prepayment penalty on her mortgage that we would very much like to get out of so we can sell it or refinance. her mortgage company is being no help in this matter. what is a good way to approach this?

The asnwer is it depends... You need to find out if it is called a HARD prepayment penalty (PPP) or a SOFT prepayment penalty (PPP). Some lenders will alow to sell the home but not refinance it AKA Soft prepayment penalty. If the lender says you have to pay it regardless, then you have no choice. Even if you had been on the mortgage, it would not make a difference. I wish it was the case, but I just ran into a similar scenario with a friend of mine that called me since I have been in the industry since 97, and we did a 3-way call with his lender. To answer your question, though, you need to ask to speak with a supervisor, and not a 1st level supervisor, to see if there is anything they know of that will allow you to circumvent this. Many custoemr svc reps don't know the difference between the PPP types, so I would suggest taking it a step further. Otherwise, you have to wait until the PPP expires, and must pay the mortgage, and it is not the mortgage company's responsibility or duty to help in this matter, unfortunately.

Powered by

I have a mortgage with countrywide and it has a 3 year prepayment penalty. i am in year 2 now and is there any way to get out of it?

Depends. What is the penalty, a "percentage" of the balance? A flat fee? If a percentage, you can refi the note and pay off all but say $100.00. Then the penalty is nominal based upon the balance owed. When you've paid in full the subject loan the second loan then becomes primary. If a flat fee prepay penalty is assessed, you have to weigh the cost to prepay against the advantage of a refi assuming refinancing is your intent. If you are selling you have no alternative than to pay the note in full as you must convey a clear title to the new owner, and that means no liens. You can also threaten to never do business with them again if they enforce the penalty, there are plenty of other good lenders out there who will not impose a pre-pay penalty. However that usually carries little weight. Conversely, you did agree to pay it... Good luck!

Powered by

I have heard this has been done. i am willing to even pay for half out of pocket. im in canada b.c.

While a lender cannot pay the penalty directly, if they want your business bad enough they can shave some fees off your loan. Not a whole lot of that going on in this environment though. Lenders are overwhelmed and some have stopped taking new applications

Powered by

I know that there is no prepayment penalty on fixed rate mortgages in california. i'm looking to pay off my mortgage in the next 2 years and the rates on the 3/1 arms look good. however, a prepayment penalty may invalidate the savings.

You are incorrect. Whether there is a prepayment penalty depends on your specific loan. It has nothing to do with the state you are in or the type of loan you have, at least not in California.

Powered by

I have a mortgage with new century and would really like to refinance (to get out of this interest only arm loan that i got stuck with,) but i have a huge prepaymant penalty if i refinance before april 2008. now, that they are going bankrupt, i was wondering if they would let me refi with no penalty or if the penalty is voided some how.

Sorry, you will not be able to get out of the prepay on this one. When you closed on the loan you signed a contract saying that you would abide by the terms of the contract no matter what. Now with New Century Mortgage going under you will find that your loan will be sold off to the highest bidder. I know that Wells Fargo bought out most of Washington Mutual's book of mortgages here a few months ago for reasons that closely resemble this. My advice to you is in 2008 when you can get out of the loan you are in, go to a bank that you know will be around for a while and not just some broker that can give you the best rate. Look at the name of the bank, if it is the first time you have heard of the bank, that is probably not a good sign. The big banks will not go under because they don't do loans such as interest only. If you can, go for a loan that is fixed and does not charge Private Mortgage Insurance.

Powered by

I have a 6 month prepay penalty and the only way around it that i can see is to sell the property. any other ideas? the one responder is correct: the ppp is good for 3 years, is calculated at 6 months interest of 80% of the loan balance

If it's a soft pre-payment penalty (PPP), then that's one way around it. If it's not, you will pay it even if you sell the property. I have seen some lenders waive the PPP if you refinance through them, but other than that, there's no way out of it. Update: FYI - there is no such thing as a 6 month PPP. The PPP is probably equal to 6 months interest on 80% of the balance, which is standard. The term of the PPP is usually 1, 2, or 3 years. You need to look at your loan documents. There will be something called a Pre-Payment Penalty Rider that will show the details of the PPP.

Powered by

My two year penalty phase will be over 2/2009. can i refinance now? or will i still be hit with the penalty?

You most likely would get hit with the pre-payment penalty unless the lender agrees to waive it. Depending on how much the penalty is, you may or may not be at a disadvantage. For instance, if the penalty is 1% (it could be 80% of 1% if you can pre-pay up to 20% of the balance per year without penalty; look at your PPP rider in your closing package to determine how they calculate the penalty), but you could reduce your rate by 2% by refinancing now, you would still be advantaged in paying it off early as you would be saving more than the difference even in the first year. If your pre-payment penalty is 5%, however, you would probably want to wait out the PPP period.

Powered by

It's a felony with possible jail time. But if you are making payments on time no one will press charges if that's all you did.