Breaking a Mortgage Contract
Sometimes during a mortgage term interest rates go down, or a current mortgage no longer meets a borrower’s needs. This is when renegotiating comes into play – changing the conditions of a mortgage.
First, determine whether renegotiating the mortgage is worth the potential costs, or if the alternatives better meet the needs.
Breaking The Mortgage Agreement
Read your mortgage contract or contact your lender to find out if you can break the contract. Different lenders have different terms and conditions.
Most often, when a contract is broken a penalty and fees are charged.
Before breaking your mortgage agreement, find out whether:
- You have to pay a penalty and what that amount is.
- If you have to pay an administration fee.
- If you have to pay legal or disbursement fees to discharge the old mortgage.
- If you have to pay legal or disbursement fees to register the new mortgage.
- If you have to repay some or all of any 'cash back' you may have received when you first obtained the mortgage.
- And if the calculation of any prepayment penalty would be based on the posted rate at the time you signed the agreement, or on a discounted rate if you negotiated one for the initial mortgage.
If a penalty charge has to be paid upon breaking your mortgage, your agreement will state how it is calculated. It is usually linked to the mortgage interest rate and may cost thousands of dollars.
Keep in mind that the penalty can change frequently because it is based on current market interest rates, the outstanding balance left on the mortgage, and the amount of time left on the mortgage term.
*Source Financial Consumer Agency of Canada