Mortgage penalties can be a source of concern for any mortgage holder, and for many Canadians, just calculating the cost of breaking a mortgage has been a major cause of headaches and confusion. Often, people will miscalculate the cost of their mortgage penalties and end up getting hit with much higher charges than they had anticipated. Not understanding mortgage penalties could also mean that you make the wrong decision on whether to buy, sell, or refinance a property. Furthermore, many lenders have been accused of making penalties appear deceptively low, and then collecting huge returns from debtors caught unaware. As a mortgage-holder, you need to know about the true costs of breaking a mortgage in order to avoid falling into this nasty situation.

What You Need To Know About IRD Charges

The main costs associated with breaking a mortgage are interest rate differential, or IRD penalties. Essentially, lenders charge IRD fees in order to compensate for the interest that they would have earned in today’s market if you had kept the original mortgage plan. Most financial institutions will provide some sort of free online tool for calculating IRD penalties. However, even with these tools, people can end up with the wrong information because these tools don’t calculate the full cost of breaking your mortgage. One of the biggest hidden charges is the discount you received when you obtained your mortgage. Many major banks will factor this discount into your overall IRD penalty, but won’t include this charge on their online penalty calculator tools. In addition, there are a number of other hidden charges associated with breaking your mortgage. The good news is that if you’re able to ask the right questions up front, most mortgage brokers will be able to provide you with the information you need to ensure that you don’t get locked into a deal that will end up hurting you financially in the long-run.

How To Obtain the Right Information

IRD penalties and other charges will vary from institution to institution. You can obtain some of the information about these charges online, but often the easier way to determine the cost of breaking a mortgage is to talk directly to a representative from a financial institution. Ideally, it’s best to do this before you even apply for a mortgage. Some factors that can change between different institutions include which payment period they base their IRD penalties on; whether or not they charge you to increase your mortgage; whether or not they require you to pay back cash incentives; and whether or not they will forgive penalty charges if you end up staying with that same institution for another mortgage.

If you’re thinking about terminating or changing your mortgage before your term is up, rest assured that you’re not the only one. In fact, more than 50 percent of people with long-term fixed-rate mortgages terminate these mortgages early. This means that if you’re applying for a mortgage, you should plan for an early exit, just in case. Some low rates might look tempting, but they might come with harsh penalties that you’re much better off avoiding.