19 September 2012

Financial institutions often use cryptic language when it comes to explaining clients how much it will cost them to break a mortgage, so that they couldn’t understand how expansive it is. In the end, many borrowers facing these penalties are unpleasantly surprised by large sums they have to pay.
Calculating the penalty is based on the interest rate differential (IRD), which has been the largest mystery for many borrowers. Generally, IRD charges should compensate the bank for the lost interest whenyou pay off your mortgage early. Actually, it’s the difference between the interest cost you were to pay and the amount the lender can earn now on the same mortgage. And, of course, even a professional can’t calculate the exact sum without a computer.
Nevertheless, everything is changing and this month the Department of Finance “convinced” banks to provide plain explanations on how IRD penalties are calculated. In addition to it, they have to provide website calculators so that clients could run the estimates themselves.

Here are some useful links to penalty calculators with the largest Canadian banks:

Royal Bank
TD Canada Trust
Scotiabank
CIBC
Bank of Montreal
National Bank of Canada
HSBC
ING Direct
Laurentian Bank