Most homeowners should expect to pay a penalty if they want to break their mortgage to get a better rate or for a complete refinance.
Homeowners in 5 year fixed mortgages often look to break their mortgage during their 3rd year for debt consolidation or to accommodate changing life circumstances.
The penalty to break a mortgage is typically the greater of
• Three month’s interest, or
• The interest-rate differential (IRD).
With the IRD, your mortgage lender will want you to pay the equivalent of what they will lose by releasing you from your mortgage and lending the money at current rates.
Unfortunately, not all lenders calculate IRD the same way so you should always get the actual penalty from your lender. Check your lender’s website for their prepayment penalty calculator.
With rates STILL at an all time low, it would be worth it to check and see if breaking your mortgage for a lower rate makes sense. You can save more than the penalty you would incur in most cases.
If you want to look at breaking your mortgage, I can review the terms and conditions of your mortgage and do an assessment of your situation to determine if your benefit outweighs the cost. There is no cost or obligation. Often penalties are rolled into the new mortgage so you don’t have to be out of pocket.
It pays to be informed, and I’m here to help!
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