Prepayment guide and calculators

Frequently asked questions

With a fixed rate mortgage the interest rate is set for the entire length of the term, whereas a variable rate mortgage may change with market conditions, which is based on a prime rate. A variable rate mortgage is sometimes referred to as a floating rate mortgage.

An open mortgage allows you to repay all or part of your mortgage at any time without penalty. Often, interest rates for open mortgages are higher. Closed mortgages cannot be prepaid, renegotiated or refinanced before maturity without you paying applicable penalties.

We offer open mortgages on renewal but not for new mortgages.

Mortgage term refers to the length of time your current agreement is with us, the lender. This agreement will include interest rates and repayment terms, and at the end of the term, the entire balance may be paid off, or the mortgage renewed for another term.

Several options may be available to you, based on the product selected. Some of which are making a lump sum prepayments, increasing regular mortgage payment amounts and making your payments more often by paying weekly or bi-weekly.

Here are some examples (Based on a $150,000 mortgage balance, 5-year term at 4.00%):

Making a lump sum pre-payment ($10,000 applied each year)

Payment frequency Monthly Weekly Bi-weekly
Principal and interest payment 789.03 197.26 394.52
Interest paid over term 21,526.20 21,043.72 21,065.24
Principal paid 75,815.60 80,243.88 80,222.36
Closing mortgage balance 74,184.40 69,756.12 69,777.64

 

Increasing a regular mortgage payment ($50 more is applied to each payment)

Payment frequency Monthly Weekly (pro-rated) Bi-weekly
Principal and interest payment 789.03 197.26 394.52
Additional principal payment 50.00 11.54 23.08
Interest paid over term 27,610.51 27,123.61 27,141.48
Principal paid 22,731.29 27,164.39 27,141.48
Closing mortgage balance 127,268.71 122,835.61 122,858.52

 

Changing a regular payment from Monthly to Weekly, or Bi-weekly

Payment frequency Monthly Weekly Bi-weekly
Principal and interest payment 789.03 197.26 394.52
Interest paid over term 27,922.70 27,440.06 27,461.74
Principal paid 19,419.10 23,847.54 23,825.86
Closing mortgage balance 130,580.90 126,152.46 126,174.14

 

You may minimize a prepayment penalty by choosing to refinance your current mortgage which allows you to renegotiate your current agreement for an increased mortgage balance amount, with a new interest rate and term.

The two prepayment penalty types commonly charged are either a 3 month interest penalty, or an Interest Rate Differential (IRD). The lender will charge the greater of these two (for terms longer than 5 years, the lender can only charge a 3 month penalty).

It is calculated by applying the interest rate being charged on your current mortgage, to the outstanding mortgage principal balance, for a 3 month period.

3 Months interest penalty Sample calculation
A) Amount you are paying out 120,000
B) Interest rate on your loan expressed as a decimal 3.89% = 0.0389
C) A x B = C 4,668.00
D) C/4 = D, D is the estimated three months interest cost 4668.00/4 = 1167.00
E) D is you estimated payout penalty 1,167.00

 

IRD is calculated by taking the difference between your current mortgage’s interest rate and the lender’s posted interest rate for the term closest to the length of time remaining in your term. This difference is then multiplied to the mortgage balance and term. For exact IRD penalty amounts, contact our Customer Service Centre at 1.855.795.4489.

Here is an example (estimating the IRD penalty; the lender uses a precise formula):

Interest rate differential penalty estimate Sample calculation
A) Interest rate on your loan 3.89%
B) Current posted interest rate in effect at the time, for a loan offered with a term that is closest, to the remaining term of your loan (see our website or call customer service for rates) 3.19% (current 3-year posted rate)
C) A - B = C, which is the difference between your Interest Rate and the current posted interest rate for a loan with a term that is similar to your remaining term, expressed as a decimal 3.89% = - = 3.19% = 0.70% = .0070
D) Amount you are paying out 120,000
E) Number of months remaining in the term of your loan 36 months
F) (C x D x E) ÷ 12 = F, F is the estimated interest rate differential amount (.0070 X 120,000 X 36)/12 = 2,520
G) F is your estimated early payout penalty 2,520