9 November 2010
Of course, if you’re not going to buy another property after that then this variant is not for you.
• Always try to make a big prepayment before you get out of the mortgage. It will lower the balance on which the penalty calculated.
• Review the lender’s “blend and extend” policy. See if it’s possible to extend the length of your mortgage and mix your old interest rate with the new term’s rate (but today it’s not very effective, because most banks can blend penalties into new interest rate).
Last February Finance Minister, Jim Flaherty, said the new rules will be implemented – they will standardize mortgage penalties. The problem is that every lender may calculate mortgage penalties in a different way. For example, many banks use the posted interest rate for it. And it can be much higher than your discounted one. So as a result your IRD penalty turns out to be greater than it should be.
No changes have been seen so far, but it looks like the government is thinking about introducing new rules next year. According to these rules, all lenders will have to charge only three months’ interest to brake the mortgage.
So if you’re thinking about getting out early, it’s a good idea to find a professional mortgage broker who can negotiate the best deal and teach you how to compensate your penalty over new term.