Calculate Penalty for Breaking Mortgage Canada

Breaking a mortgage in Canada before the end of the term can result in significant penalties. Our calculator helps you estimate these penalties based on your mortgage terms and current balance. Understanding these charges is crucial for making informed financial decisions.

How to Calculate Mortgage Breaking Penalty in Canada

The penalty for breaking a mortgage in Canada is typically calculated as a percentage of the remaining mortgage balance. The exact percentage depends on your mortgage terms and the reason for breaking the mortgage.

Formula

Early Repayment Penalty = Remaining Mortgage Balance × Penalty Percentage

Example Calculation

If you have a remaining mortgage balance of $200,000 and the penalty percentage is 2%, the early repayment penalty would be:

$200,000 × 2% = $4,000

This means you would owe an additional $4,000 if you break your mortgage early.

Factors Affecting the Penalty

Remaining mortgage balance
Penalty percentage in your mortgage agreement
Reason for breaking the mortgage (e.g., selling your home, refinancing)
Whether you have a fixed or variable rate mortgage

Types of Early Repayment Penalties in Canada

There are several types of early repayment penalties that may apply when you break a mortgage in Canada:

1. Break Cost

This is a one-time fee charged when you pay off your mortgage before the end of the term. The break cost is typically a percentage of the remaining mortgage balance.

2. Prepayment Penalty

Some mortgages include a prepayment penalty that applies if you pay off the mortgage early. This penalty is usually a percentage of the remaining balance.

3. Refinancing Penalty

If you refinance your mortgage before the end of the term, you may be charged a penalty. This penalty is usually a percentage of the remaining mortgage balance.

4. Selling Your Home Penalty

When you sell your home, you may be charged a penalty if you pay off the mortgage early. This penalty is usually a percentage of the remaining mortgage balance.

How to Avoid Mortgage Breaking Penalties

There are several strategies you can use to avoid or minimize mortgage breaking penalties in Canada:

1. Check Your Mortgage Agreement

Review your mortgage agreement to understand the terms and conditions regarding early repayment penalties. Some mortgages may have no penalties for certain reasons.

2. Negotiate with Your Lender

Contact your mortgage lender to discuss your situation. They may be willing to waive or reduce the penalty if you have a valid reason for breaking the mortgage.

3. Consider Refinancing

If you need to break your mortgage, consider refinancing with a new lender who may offer more favorable terms. However, be aware that refinancing may come with its own fees and penalties.

4. Plan Ahead

Plan your finances carefully to avoid the need to break your mortgage early. This may involve saving for a down payment or finding alternative financing options.

Frequently Asked Questions

What is the average early repayment penalty in Canada?: The average early repayment penalty in Canada is typically between 2% and 5% of the remaining mortgage balance. However, this can vary depending on your mortgage terms and the reason for breaking the mortgage.
Can I negotiate the early repayment penalty?: Yes, you can negotiate the early repayment penalty with your mortgage lender. They may be willing to waive or reduce the penalty if you have a valid reason for breaking the mortgage.
Are there any exceptions to early repayment penalties?: Some mortgages may have exceptions to early repayment penalties, such as if you are moving to a new home or if you are experiencing financial hardship. Review your mortgage agreement to understand the exceptions that may apply.
What should I do if I can't afford the early repayment penalty?: If you can't afford the early repayment penalty, contact your mortgage lender to discuss your situation. They may be willing to work with you to find a solution, such as extending the mortgage term or refinancing with a new lender.