6 August 2010
The deal is that people exit mortgages early almost all the time. There are many reasons for that: taking out home equity, debt consolidation, property sale, a better rate available, readvanceable line of credit or sometimes even divorce.
All this explains why the average 5-year fixed mortgage lasts only 3.5 years.
Anyway, there are, usually, two kinds of penalties:
• Interest rate differential (IRD) penalties
• 3-month interest penalties
The first one is more trouble-causing, because the calculation methods, each lender uses, can be different.
There are cases when a lender’s use of posted rates in its IRD calculations costs thousands more than a lender using discounted rates.
In case you are not sure about what kind of calculation method your lender uses, consult your mortgage broker or a banker in order to find it out.
And, of course, you can always use Internet and search Google for the necessary information. The penalty policy is usually explained on the lender’s official site.