Breaking a mortgage early can trigger a penalty. Understand IRD vs three-month interest and what your commitment letter says before you sign.
Not legal advice. This article provides general information about document types and what they commonly contain. It does not constitute legal advice and is not a substitute for advice from a qualified lawyer. Laws vary by province and your circumstances are unique — consult a legal professional for guidance specific to your situation.
If you sell, refinance, or pay off a mortgage early, your lender may charge a prepayment penalty. The commitment letter or loan agreement should say how it is calculated.
A common method: three months of interest on the remaining balance. Usually the lower penalty when rates have risen since you signed.
Compares your contract rate to the lender's current rate for a similar term. Can be much larger than three-month interest when rates have fallen.
Find the prepayment section, note which formula applies, and whether partial prepayments (lump sums each year) are allowed without penalty.
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