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Should You Be Breaking Your Mortgage? - Canadian Budget Binder
Are you thinking about breaking a mortgage early? Most people assume that when they sign up for a 5 year fixed rate that they have to stay in that mortgage for the next 5 years…that isn’t true in most cases. While there are a few lenders out there who have “closed” mortgages that are not breakable without a bona fide sale of the property, the vast majority are breakable. So how does that work? If you decided that the rate you were paying was too high or you wanted to add funds in a refinance or various other situations that made you want to break the mortgage you were in, how can it be done? If your current mortgage rate is less than lender’s rate on the equivalent remaining term, you simply pay a 3 month interest penalty…for example: Current mortgage of $150,000 @ 3.25% with 3 years remaining Lender’s 3 year rate is currently 3.45% 3 Months interest = $1,219 approximately ($150,000 x 3.25% /12 x3) What if the opposite is true, the current rate you have on your mortgage is higher than the current available from the lender? Now we enter the world of IRD, or Interest Rate …