Breaking a mortgage contract early can come with significant costs. The exact amount can vary depending on a variety of factors. If you’re a homeowner in Canada considering breaking your mortgage contract before it’s up, it’s important to understand the potential consequences. Aim to minimize the costs as much as possible. In this blog post, we’ll explore the various costs associated with breaking a mortgage contract early in Canada. We will also provide some tips for reducing those costs.
The Costs Of Breaking A Mortgage Contract Early In Canada
First and foremost, it’s important to understand that breaking a mortgage contract early is not something to be taken lightly. When you take out a mortgage, you’re essentially entering into a long-term financial commitment with your lender. As such, breaking that contract early can have serious financial implications.
One of the primary costs of breaking a mortgage contract early is the penalty fee. This fee is designed to compensate the lender for any losses they may incur as a result of you breaking the contract. The exact amount of the penalty fee will depend on a variety of factors. This includes the terms of your mortgage contract, the current interest rate environment, and the remaining term of your mortgage.
In general, the penalty fee for breaking a mortgage contract early in Canada is calculated as a percentage of your mortgage balance. For example, if you have a mortgage balance of $400,000 and the penalty fee is 3%, you would be required to pay a penalty of $12,000.
In addition to the penalty fee, you may also be required to pay other costs associated with breaking your mortgage contract early. These can include legal fees, appraisal fees, and other closing costs. It’s important to carefully review your mortgage contract and discuss any potential costs with your lender before making the decision to break your mortgage contract early.
How To Minimize The Costs Of Breaking A Mortgage Contract Early
- Shop around for a lender with more favorable penalty fees. Different lenders may have different penalty fees for breaking a mortgage contract early. It’s worth shopping around in advance for the best terms.
- Consider refinancing your mortgage. If you’re unhappy with your current mortgage rate or terms, refinancing may be a good option. By refinancing, you can potentially secure a lower interest rate and more favorable terms, which may make it worth the cost of breaking your current mortgage contract early. There are options to amortize your mortgage over a longer period as well.
- Sell your home. If you’re looking to break your mortgage contract early in order to move to a new home, consider selling your current home first. This can help you avoid the costs of breaking your mortgage contract early and allow you to use the proceeds from the sale to put towards a new home.
- Explore government programs. If you’re having difficulty making your mortgage payments, there may be government programs available to help. For example, the B.C. government offers the Homeowner Mortgage and Equity Partnership (HOME) that provides financial assistance to homeowners facing financial hardship.
Breaking a mortgage contract early can be a stressful and costly experience. With a little planning and preparation, you can minimize the costs as much as possible. By understanding the potential costs and exploring your options, you can make an informed decision about whether breaking your mortgage contract early is the right move for you.
