Cost of Breaking Mortgage Calculator
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Reviewed by Calculator Editorial Team
Breaking your mortgage early can save you money, but it comes with costs. Our cost of breaking mortgage calculator helps you estimate the financial impact of paying off your mortgage before the agreed term. Understand the fees, interest savings, and potential penalties to make an informed decision.
What is mortgage break cost?
Mortgage break cost refers to the additional expenses incurred when you pay off your mortgage before the agreed term ends. This cost includes early repayment charges, lost interest savings, and potential penalties from your lender.
Most mortgages have early repayment clauses that charge a fee for paying off the loan before the agreed term. These fees can range from 2% to 5% of the outstanding loan balance, depending on your lender's terms.
Key Point
Breaking your mortgage early can save you money on interest payments, but the early repayment charges may offset these savings. Always compare the total cost before making a decision.
How to calculate mortgage break cost
Calculating the cost of breaking your mortgage involves several factors. The primary components are:
- Early repayment charge (ERC)
- Lost interest savings
- Total cost of breaking mortgage
Formula
Total Cost of Breaking Mortgage = Early Repayment Charge + (Original Loan Amount × Interest Rate × Remaining Term) - (Outstanding Balance × Interest Rate × Remaining Term)
The early repayment charge is typically a percentage of your outstanding loan balance. The lost interest savings represent the interest you would have paid if you had kept the mortgage until the agreed term.
Factors affecting break cost
Several factors influence the cost of breaking your mortgage:
- Early repayment charge (ERC): The fee charged by your lender for paying off the mortgage early.
- Interest rate: The rate at which you're borrowing money, which affects both the ERC and lost interest savings.
- Remaining term: The time left on your mortgage agreement.
- Outstanding balance: The amount you still owe on your mortgage.
- Lender's terms: Different lenders have different policies regarding early repayment.
Understanding these factors helps you make a more informed decision about whether breaking your mortgage is financially beneficial.
Example calculation
Let's look at an example to illustrate how the cost of breaking mortgage is calculated.
| Variable | Value |
|---|---|
| Original Loan Amount | $200,000 |
| Interest Rate | 4.5% |
| Remaining Term | 5 years |
| Outstanding Balance | $150,000 |
| Early Repayment Charge (ERC) | 3% |
Using the formula:
Calculation
Total Cost of Breaking Mortgage = (150,000 × 3%) + (200,000 × 4.5% × 5) - (150,000 × 4.5% × 5)
= 4,500 + 450,000 - 337,500
= $106,000
In this example, breaking the mortgage would cost $106,000, which includes the ERC and lost interest savings.
When to break mortgage
Breaking your mortgage early can be beneficial in certain situations:
- When you have a significant amount of savings to put toward the mortgage.
- When interest rates have dropped significantly since you took out the mortgage.
- When you need to access the equity in your home for other financial needs.
- When you plan to sell your home soon and want to avoid paying off the mortgage.
However, breaking your mortgage early may not always be the best financial decision. Always consider the total cost and your long-term financial goals before making a decision.
Frequently Asked Questions
What is an early repayment charge?
An early repayment charge is a fee charged by your lender if you pay off your mortgage before the agreed term. It's typically a percentage of your outstanding loan balance.
How do I calculate the cost of breaking my mortgage?
You can calculate the cost of breaking your mortgage by adding the early repayment charge to the lost interest savings. Use our calculator to estimate the total cost.
Can I break my mortgage without paying a fee?
Some lenders offer fee-free early repayment options, especially if you meet certain criteria like having a good credit score or maintaining the mortgage for a certain period.
What happens if I break my mortgage early?
Breaking your mortgage early can save you money on interest payments, but you may have to pay an early repayment charge. The total cost depends on your lender's terms and the remaining term of your mortgage.
Is it always better to break my mortgage early?
Not necessarily. Breaking your mortgage early may not always be the best financial decision. Always consider the total cost and your long-term financial goals before making a decision.