Calculate Mortgage Breaking Penalty

Breaking your mortgage early can result in significant penalties. This calculator helps you estimate the costs of breaking your mortgage before you make a decision.

What is a mortgage breaking penalty?

A mortgage breaking penalty is a fee charged by your lender when you pay off your mortgage before the agreed term ends. These penalties are designed to protect lenders from losing interest income and to discourage borrowers from exiting loans early.

The exact amount of the penalty varies depending on your loan type, remaining term, and the lender's policies. Common types of penalties include:

Early repayment charges (flat fees or percentages of remaining balance)
Interest rate adjustments
Reduced refinancing options

How to calculate mortgage breaking penalty

Calculating your mortgage breaking penalty involves several factors. The most common method is to use the following formula:

Mortgage Breaking Penalty = (Remaining Loan Balance × Penalty Rate) + Fixed Fee

Where:

Remaining Loan Balance - The current amount you owe on your mortgage
Penalty Rate - The percentage fee charged by your lender (varies by lender and loan type)
Fixed Fee - A flat fee some lenders charge in addition to the percentage

For example, if you owe $200,000 with a 2% penalty rate and a $500 fixed fee, your penalty would be:

($200,000 × 0.02) + $500 = $4,000 + $500 = $4,500

Types of mortgage breaking penalties

Different lenders use different penalty structures. Common types include:

Early Repayment Charge

This is a flat fee or percentage of your remaining loan balance. It's typically applied when you pay off the mortgage before the agreed term.

Interest Rate Adjustment

Some lenders increase your interest rate if you break the mortgage early. This can significantly increase your total repayment amount.

Reduced Refinancing Options

Breaking your mortgage may limit your ability to refinance in the future, as some lenders require you to have been in your current mortgage for a certain period.

Exit Fee

Some lenders charge a one-time exit fee when you pay off the mortgage, regardless of the remaining balance.

How to avoid mortgage breaking penalties

If you need to break your mortgage early, there are several strategies to minimize penalties:

Negotiate with your lender - Some lenders may be willing to waive or reduce penalties if you have a good reason
Consider refinancing - If you can secure a better rate, refinancing might be more cost-effective than breaking your current mortgage
Check your contract - Review your mortgage agreement to understand exactly what penalties apply
Plan ahead - If you know you'll need to break your mortgage, consider doing so at a time when penalties are lower

Always compare the total cost of breaking your mortgage with the cost of staying in it. Sometimes it's better to continue paying even if you can afford to pay it off early.

FAQ

What is the average mortgage breaking penalty?

The average mortgage breaking penalty varies by lender and loan type. Fixed-rate mortgages typically have lower penalties than variable-rate mortgages. Some lenders charge 2-5% of the remaining balance, while others may charge a flat fee of $1,000-$5,000.

Can I negotiate my mortgage breaking penalty?

Yes, in many cases you can negotiate your mortgage breaking penalty. Lenders may be willing to waive or reduce the penalty if you have a good reason for breaking the mortgage early, such as financial hardship or a significant life event.

Is it always better to break my mortgage early?

Not necessarily. Breaking your mortgage early may save you money on interest payments, but it could also cost you in penalties. Always calculate the total cost of breaking your mortgage before making a decision.

How long do I have to be in my mortgage before I can break it?

The minimum period you must be in your mortgage before you can break it varies by lender. Some lenders require you to be in the mortgage for at least 6 months, while others may require a full year.