Issue link: https://canadawidemedia.uberflip.com/i/840925
44 >> OUR HOUSE SUMMER 2017 DoMinion LEnDing CEntRES TOOLBOX Staying Out of the PenaLTy BOX Pam PikkerT is part of DLC Regional Mortgage group based in Red Deer, AB. get to know the costs involved before you break your mortgage agreement By Pam Pikkert iStoCk W e have all heard the horror stories about huge mortgage penalties. Like the time your friend wanted to refinance her home so that she could open a small business only to find out that it was going to cost her $13,000 to break her mortgage. this should not come as a surprise. it would have been in the initial paperwork from the mortgage lender and seen again at the lawyer's office. A mortgage is a contract and when it is broken there is a penalty assessed and charged. Homeowners will have agreed to this. the institution that lent the money did so with the expectation that it would see a return on that investment, so when the contract is broken there is a penalty to protect its interests. if you think about it, there is even a penalty to break a cellphone contract, so the provider can recoup the costs it incurred. it stands to reason that there should be a penalty on a mortgage. the terms of the penalty are clearly outlined in the mortgage approval which you will sign. the onus is on you to ask questions and make sure you are comfortable with the terms of the mortgage offer. With so many mortgage lenders in Canada, you can very easily seek out other options if needed. in Canada there is no one-size-fits-all rule for how the interest Rate Differential is calculated. it can vary greatly from lender to lender. there can be a very big difference depending on the comparison rate that is used. i have seen this vary from $2,850 to $12,345 when all else was equal but for the lender. ■ Given that six out of 10 mortgages in Canada are broken around the 36-month mark, wouldn't it be better to find out before you sign how your mortgage lender calculates its penalty just in case? The best way to get more information is to contact your local Dominion Lending Centres mortgage professional at dominionlending.ca. There are two ways the mortgage penalty can be calculated. Three months interest – this is a very simple one to figure out. You take the interest portion of the mortgage payment and multiply it by three. For instance: Mortgage balance of $300,000 at 2.79 per cent = $693.48/month interest x three months, or $2080.44 total penalty. OR The Interest Rate Differential – this is where things get trickier. the iRD is based on: » the amount you are pre-paying; and, » An interest rate that equals the difference between your original mortgage interest rate and the interest rate that the lender can charge today when re-lending the funds for the remaining term of the mortgage. 1 2