How Mortgage Penalty Is Calculated In Canada

For most home buyers shopping for a mortgage, interest rate is the most important aspect of the process. However, it’s important to look past mortgage rates and also consider penalty rates. While no one plans to break their mortgage, there are many reasons you may have to in the future and it’s smart to plan for all possibilities.

Unforeseeable circumstances such as divorce, a move, a change in finance, or other personal circumstances may mean that you can’t complete your mortgage term. It’s important to plan for the possibility that you may not be able to see your term through right from the beginning, or you may get hit with a huge penalty. When discussing your mortgage, either with a bank or mortgage broker firm, make sure you ask about the process of breaking a mortgage, and the penalties involved.

Mortgage penalty is calculated using the interest rate differential. Typically, the penalty is calculated by taking the greater of three months interest on the remaining balance, or the interest for the remainder of the term on the remaining balance. There’s little point in trying to save a couple dollars a month on a low interest rate, if you end up getting hit with thousands in penalty rates for having to break your mortgage. Looking ahead to all possibilities can help you be prepared in the face of unexpected costs, and avoid any nasty surprises.


Something to consider as well when it comes to mortgage penalties is the difference between a fixed and variable rate mortgage. Fixed rate mortgages tend to have higher penalties than variable rate mortgages. It’s worth visiting a mortgage broker firm and discussing these options, as it can be overwhelming to research it all on your own.

When searching for lower penalty rates, it’s all about the lender. Smaller mortgage broker firms tend to offer better penalty rates than the larger ones, or banks. Even though it may be the last thing on your mind when shopping for a mortgage, planning ahead for the possibility of breaking your mortgage can save you thousands of dollars.

At Northwood Mortgage, our mortgage professionals work hard to find you the lowest and best mortgages rates and terms. Mortgage shopping can be difficult, especially for the first-time home buyers, and there are so many factors to consider. Our mortgage experts can help you navigate the tricky world of mortgage shopping, and find you the best mortgage for your needs. Contact us today to set up a meeting.

source: northwoodmortgage.com

Hurdles Towards Getting The Best Mortgage Rate

Even if you try hard to get the most attractive rate and term for a mortgage, you still might only end up with the most favorable option available for someone in your situation rather than with the best option available in the marketplace.

In fact, depending on various factors, the difference between your rate and a superior rate could be numerous percentage points.

Since even a single percentage point difference can make a difference over the long haul, it’s in your best interests to learn about the obstacles to getting the best mortgage rates. Read on for some tips that will help you get ahead.


Low Credit Score

If your credit score is south of 680, you’ll fall short of the threshold needed to secure the best interest rates available. It’ll be even worse if, in addition to a low credit score, you also lack the ability to come up with a substantial down payment. Having good credit though, won’t be enough. You’ll also need to demonstrate a 24-month period of good credit with zero major delinquencies.

Duration of Rate Hold

Since the general rule of thumb is that the lowest interest rates tend to be available for so-called quick closes, you will only be able to benefit from this general policy if you hold a rate for less than a month.

Modest Salary

When it comes to getting the best rates, your income will be a factor. If you’re your own boss or cannot easily provide proof of stable income over a number of years, you may very well miss out of the most attractive rates. In addition, some lenders will insist that you table a larger down payment.

Higher Risk Properties

Another factor that can impact your rate is the nature of the property you are interested in purchasing. For example, there are lenders that will assess higher rates for condo units, cottages, and big multi-unit residences since these sorts of living spaces are viewed by some lenders as higher risk, non-standard properties.

All in all, it is very much possible to get a compelling mortgage rate if you’re willing to do a bit of searching, but as you’ve seen from the aforementioned points, there are some hurdles towards getting the best mortgage rates. Consider the aforementioned points and compare them to your own situation to ascertain whether or not you’re likely to qualify for the best rates.

source: northwoodmortgage.com