Mortgage penalty calculations... More important than the interest rate!

October 1, 2018 | Posted by: Mike Garganis

You finally found the right home....after months of searching and driving your realtor nuts.   Now, you need to pay for it. 

For most (if not all) of us, we need a mortgage.  What’s the first question you ask your mortgage agent?  “What’s your best interest rate?”, and the second question is usually, “fixed or variable?”.

No one asks about Mortgage Penalties or how they are calculated.  The most popular term the past 10 years or so is the 5 year term. 

Here’s a little known stat: “Canadians change their mortgage every 3 years, on average”.  Ask anyone that’s owned a home before.  Chances are, they’ve had to deal with a mortgage penalty at some point. 

$10,000, $20,000, $30,000 and higher.  This is how much penalties can add up to.  These are real numbers and not from some unknown bank or small lender. These are coming from the BIG SIX BANKS.!!

The average Canadian takes between 12 and 18 years to pay off their mortgage.   The most popular product is still a 5 year fixed rate (even though it’s NOT always the right product to be in, depending on your specific scenario).  I’ll sound like a broken record, but stats show we change our mortgage roughly every 3 years.

This means we will be paying off our mortgage mid-term, at some point in our lives.  It’s not “if” but “when”.   And as I’ve mentioned, penalties can add up to ridiculous amounts..  $10,000, $20,000, $30,000 and more!  

I'm repeating myself because I hate seeing the banks take advantage of clients and not offer an alternative.....well, for most part, most banks don't have alternative products to offer.


Here is a list of things you can do to avoid these inflated penalties:

  1. Find out how your Bank calculates their penalties.
  2. Understand that penalties are NOT calculated the same by all Banks or Financial Institutions.
  3. There are better Lenders out there.  Lenders that DON’T use an inflated prepayment penalty formula to calculate your penalty.
  4. Ask what the best product is to avoid or minimize your penalty.
  5. Speak to an unbiased mortgage professional.  Contact an experienced Mortgage Broker.
  6. Remember, your bank can only offer or sell their own brand of products.   It’s impossible for them to give unbiased advice.

Should you know how a mortgage prepayment penalty is calculated?  You better.  It’s the single largest expense that most of us will need to deal with.   It’s more important than the interest rate.  I’ll repeat that…  It’s more important than the interest rate.

Let's put you in the right mortgage.

Contact me today.

  • Mike Garganis
  • 416-481-6444

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