Calgary Mortgage Payout Penalties

When it comes to Calgary home mortgages, it is easy to focus on the mortgage interest rates and your current situation, but the reality is that life happens and when it does, great mortgage rates won’t be the only thing that matter.

At the end of the day, a mortgage is a contract between you (the homeowner) and the bank. As such, there are often mortgage payout penalties involved if the contract is ever broken. This is something that every homeowner agrees to when you sign mortgage paperwork, but it can be easy to forget - until you’re paying the payout penalty. These things do happen as approximately 6 out of 10 mortgages in Canada are broken within 3 years. Should your circumstances change, knowing the next steps can help you navigate the mortgage payout penalty process.

Calculating Mortgage Payout Penalties

Typically, the penalty for breaking a mortgage is calculated in two different ways. Lenders generally use an Interest Rate Differential calculation or the sum of three months' interest to determine the payout penalty. You will typically be assessed the greater of the two penalties unless your contract states otherwise.

Interest Rate Differential (IRD)

In Calgary, there is no one-size-fits-all rule for how the IRD is calculated and it can vary greatly from lender to lender. This is due to the various comparison rates that are used. However, typically the IRD is based on the amount remaining on the mortgage and the difference between the original mortgage interest rate you signed at and the current mortgage interest rate a lender can charge today.

In this case, these penalties vary greatly as they are based on the borrower's specific mortgage and the specific rates on the agreement, and in the market today. However, let's assume you have a balance of $200,000 on your mortgage, an annual interest rate of 6%, 36 months remaining in your 5-year term and the current rate is 4%. This would mean an IRD penalty of $12,000 if you break the contract.

Ideally, you will want to be aware of what your IRD penalty would be before you decide to payout your mortgage early as it is not always the most viable option.

Three Months Interest:

In some cases, the penalty for breaking your mortgage is simply equivalent to three months of interest. Using the same example as above - balance of $200,000 on your mortgage, an annual interest rate of 6% - then three months interest would be a $3,000 early mortgage payout penalty. A variable-rate mortgage is typically accompanied by only the three-month interest penalty.

Paying The Mortgage Payout Penalty

When it comes to making the payment, some lenders may allow you to add this payout penalty to your new mortgage balance (meaning you would pay interest on it). You can also pay your penalty upfront. Whenever possible, if you can wait out your current mortgage term before making a change to your mortgage, it is the best way to avoid being stuck in the penalty box. If you cannot avoid a penalty, do note that, while only calculators can be great tools for estimates, it is best to contact our mortgage agents directly to discuss your mortgage terms and potential mortgage penalty calculations.

CLICK HERE For More Information on Payout Penalties and How To Protect Yourself

Life happens and not always on the same schedule as your mortgage. Do your homework to avoid nasty surprises from your friendly banker!

November 2021 Calgary Real Estate Newsletter

Getting Family Members on the Same Page

Remember the last time you had a family discussion about what to have for dinner? Chances are, there were some disagreements! In fact, it might have been agonizing trying to get everyone to settle on the same dish. Now imagine getting everyone to agree on what type of home to buy!

Obviously, you want family members to be in harmony when looking for a new home. The more everyone is on the same page, the smoother the process will be.

Here are some tips worth trying:

• Make a list. Have everyone list the top three features they want in a new home. You might find that family members are closer to agreement than you thought. Also, family members will likely not be disappointed if they get two out of the three features they want.

• Have a family meeting. Set a goal to have a clear profile of the kind of home you want by the end of the meeting. Be prepared for some lively discussion, but also be firm that a decision needs to be made.

• Be understanding. If a family member insists on a particular feature, ask why. It might be trivial, such as having a shopping mall within walking distance when driving or taking transit is relatively easy. On the other hand, the desired feature might be something truly important and worth considering.

• Manage expectations. Explain that not everyone will get what they want and that you (or you and your significant other) will do your best to accommodate everyone’s wishes.

There’s no perfect solution. Depending on your family, it might be difficult to make sure everyone is happy with the home you end up buying. However, by using these tips you can ensure that everyone will at least feel they’ve been heard. Then, once you start building memories in your new place, everyone will start to feel like it’s home!

Managing Home Insurance

Home insurance seems to be getting costlier every year, with basic premiums continuing to rise as more homes are exposed to added risks attributed to extreme weather events, accidents, vandalism, and outright theft. 

This leaves homeowners in a difficult situation, but there are things that can be done to help ease rising costs. First, examine your current policy and talk to your agent/broker about your coverage and premiums. You might, for example, agree to increase your deductible to decrease premiums. Meanwhile, you may also be eligible for discounts, based on client profiles such as bundled policies (e.g., auto & home), claims history, and payment punctuality.

Other discounts may be available based on steps taken to protect your home from potential damage, such as installing a backflow valve or sump pump. Or, you may qualify for lower insurance rates if you have recently improved your home’s structural integrity, such as its foundation or roof. Your policy premiums might also benefit from other investments in your home’s infrastructure, like upgrading your heating, wiring or plumbing, or installing a centralized fire and security system. You’ll need to determine whether the cost of these improvements will be offset by lower insurance premiums over a reasonable period of time.

Buying a Home Out-of-Town

Have you ever considered selling your home and moving out-of-town? One concern that might be holding you back is the uncertainty involved in finding a home in an unfamiliar place. What are the best neighbourhoods? What are homes selling for in that area? What is it like to live there?

There are many ways to find out.

• If possible, spend a day in the area. Walk some of the neighbourhoods. Visit schools and parks. Check out the local shopping and other amenities.

• Talk to someone who lives there. This will give you firsthand insights into the area. You can facilitate this through a Facebook post where you ask to chat with a local resident.

• View current listings in the area online. Most listings include helpful data on safety, demographics and other information.

• Get a handle on home prices by finding out what a home like yours is currently selling for in that area. That will give you a baseline to determine what you can expect to pay.

What’s the bottom line? There’s no need to let uncertainty about finding a home in a different town or city hold you back.