# Penalty to pay off my mortgage??



## R.O.V. (May 16, 2010)

I just sold my small business and am walking away with approx $400k. I plan on paying off the mortgage on my house. I owe Scotiabank $189K. I have a five yr fixed @ 3.65%. I have 2yrs nine months remaining on the term. 

Will I have to pay a penalty...or will they let me become debt free without trying to take more of my money?


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## the-royal-mail (Dec 11, 2009)

We won't know that. Every mortgage is different. Call them and ask.


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## balexis (Apr 4, 2009)

Congrats on your sale!

I never heard of a bank charging no penalty, unless you refinance for a bigger one or something alike.

To try and minimize the penalty, look into using the pre-payment option you have available, and increase your payments to the max allowed until you want to break the mortgage.

In the end, the only way to know the penalty amount for sure is to call them.


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## jamesbe (May 8, 2010)

Yeah call to find out. Cross your fingers for a 3 month interest penalty, otherwise you may have to do the math to see if it is worth it or not.


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## Plugging Along (Jan 3, 2011)

The only mortgage I have seen without a penalty is the open variable. The fixed ones usually have a higher penalty.

Give them a call, and see what you can negotiate.


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## R.O.V. (May 16, 2010)

Thanks guys....yes I will be calling them, but wanted to know what to expect before I made contact. I can prepay $40K this yr and have increased my bi-weekly pymts by 15%(max allowed) a yr or so ago.

When I find out the amt of penalty...I will get back to you smart people and see if I'm better off paying the mortgage completely off or making my prepayments and continue to the end of the term


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## Plugging Along (Jan 3, 2011)

Make sure you increase the bi weekly payments asap, and put the prepayment on, before you negotiate. 

The other thing you can do is make another $40k prepayment Jan 1, and break it then. It will save a little on the penalities.


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## Oldroe (Sep 18, 2009)

I wouldn't pay a cent just put the money in laddered gic and time it for your payment options.


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## daddybigbucks (Jan 30, 2011)

Oldroe said:


> I wouldn't pay a cent just put the money in laddered gic and time it for your payment options.


that what i would do as well.

the bank will want its 3.65% so that will work out to a $17K.

put it in something you will make more than the 3.65%


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## Jungle (Feb 17, 2010)

We are with Scoita as well and NO, they will not budge. Best thing you can to is "match a payment", lump sum 15% per year and increase payment 15% per year.


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## GeniusBoy27 (Jun 11, 2010)

Each mortgage is different. I'd maximize the prepayment, and the bi-weekly/monthly payments to the max, and put the rest in a GIC, as the other have suggested.

My bank allows me to double my payments, and have a prepayment of 15%. But each mortgage is different.


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## R.O.V. (May 16, 2010)

Update on my mortgage situation:

I finally got my cash in hand and went to my Scotia branch to deposit the cheque and meet with the manager. To completely pay my mortgage off ($189K) resulted in a $2216.00 penalty. The manager suggested I make the maximum pre-payment ($40K) and he would re-access, which I did yesterday. 

Manager just called and said the penalty has dropped to $1700 but is suggesting I now match my bi-weekly pyment ($1035.00) until May 1/2012 (anniversary of mortgage), at that time I can pre-pay another $40K, and then it *might* be feasible to break the mortgage...i.e. reach the break even point.

Should I do this?

Should they be able to calculate the exact week that the breakeven point will occur?


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## Elbyron (Apr 3, 2009)

To pay off the mortgage without any fees will take until May 2013 to do. Assuming you double-up your bi-weekly payment to $2070, put down $40K now and another 40K next May, the remaining balance in May 2013 will be about $21K which you can then pay off. In this scenario, the total interest you will pay is $5300. This is obviously a lot more than the $1700 fee, but there's another factor to consider: paying back the full $189K now vs spreading over 2 years. If you put the money aside into a laddered GIC or high interest savings account, then it can earn interest while it's waiting for its time to be used. Taking into account that the regular bi-weekly payments and lump sum payments would be withdrawn from this account, and assuming an average interest rate of around 3%, your total interest would accumulate to ~$4100 by May 2013. Thus the net cost to you would be only ~$1200. But don't forget that I assumed a 3% interest rate for that account... if that's not possible then your earnings might not offset enough of the mortgage interest to make it worth avoiding the fees.

You should probably inquire about what the cost to break the mortgage in May 2012 will be, after the second pre-payment. You'll be down to about $73K owing at that point, so it might be cheaper. If you can find out what formula they use, we can probably determine the optimal solution for getting you out of your mortgage as cheaply as possible.


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## jamesbe (May 8, 2010)

Looking at those numbers... personally I'd suck it up pay it off and enjoy living life mortgage free!!!


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## daddybigbucks (Jan 30, 2011)

jamesbe said:


> Looking at those numbers... personally I'd suck it up pay it off and enjoy living life mortgage free!!!


I agree with that. The 2K works out to 1.1%.
For such a little Penalty, i would just pay it off and be done with it.


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## R.O.V. (May 16, 2010)

Elbyron said:


> To pay off the mortgage without any fees will take until May 2013 to do. Assuming you double-up your bi-weekly payment to $2070, put down $40K now and another 40K next May, the remaining balance in May 2013 will be about $21K which you can then pay off. In this scenario, the total interest you will pay is $5300. This is obviously a lot more than the $1700 fee, but there's another factor to consider: paying back the full $189K now vs spreading over 2 years. If you put the money aside into a laddered GIC or high interest savings account, then it can earn interest while it's waiting for its time to be used. Taking into account that the regular bi-weekly payments and lump sum payments would be withdrawn from this account, and assuming an average interest rate of around 3%, your total interest would accumulate to ~$4100 by May 2013. Thus the net cost to you would be only ~$1200. But don't forget that I assumed a 3% interest rate for that account... if that's not possible then your earnings might not offset enough of the mortgage interest to make it worth avoiding the fees.
> 
> You should probably inquire about what the cost to break the mortgage in May 2012 will be, after the second pre-payment. You'll be down to about $73K owing at that point, so it might be cheaper. If you can find out what formula they use, we can probably determine the optimal solution for getting you out of your mortgage as cheaply as possible.


Thanks for the analysis...I looked at GIC's yesterday and couldn't find 3% anywhere...the highest rate I could find was 2.85% for a 5 yr term and shorter terms had correspondingly lower rates.

Looking at the last couple of posts, and taking everything into consideration...I just might break the mortgage today...pay the $1700 penalty and see what it feels like to be living mortgage free


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## Oldroe (Sep 18, 2009)

Life starts when the mortgage ends!


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## OnlineHarvest (Apr 6, 2009)

jamesbe said:


> Looking at those numbers... personally I'd suck it up pay it off and enjoy living life mortgage free!!!


+100000

The grass feels different under your feet when its all yours!

I wouldn't know the feeling....  .....yet

That is a pretty nominal hit, pay it and yell FREEDOM as loud as you can in the backyard...


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## R.O.V. (May 16, 2010)

Update:

Yahoooo! We are finally debt free. I bit the bullet, paid the penalty and paid off the mortgage! It feels awesome. I also paid both my truck and car loans off. It is so weird when logging on Scotia online and see all zeros under the borrowing and credit card section!

We are installing a new hot tub to reward ourselves for reaching this goal. Cant wait!

BTW, thnks to all CMFers for providing advice and helping me reach this milestone.


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## financialnoob (Feb 26, 2011)

Elbyron: I thought the analysis was interesting, though I'd also factor in the potential interest gained by paying the mortgage off earlier and then re-directing those saved extra payments to an investment account with a similar return.

Either way, congrats to the OP!


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## DanFo (Apr 9, 2011)

Nice job enjoy the freedom!!


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## Elbyron (Apr 3, 2009)

financialnoob said:


> Elbyron: I thought the analysis was interesting, though I'd also factor in the potential interest gained by paying the mortgage off earlier and then re-directing those saved extra payments to an investment account with a similar return.
> 
> Either way, congrats to the OP!


I accounted for the payments in the slow-paydown scenario by having them withdrawn from the investment/GIC account each month. Thus both scenarios were evaluated as having no impact on the OP's cash-flow.


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## daddybigbucks (Jan 30, 2011)

Congrats ROV

One thing i find in this world is when good things happen to people, they usually deserve them.


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## Financial Cents (Jul 22, 2010)

R.O.V. said:


> Thanks for the analysis...I looked at GIC's yesterday and couldn't find 3% anywhere...the highest rate I could find was 2.85% for a 5 yr term and shorter terms had correspondingly lower rates.
> 
> Looking at the last couple of posts, and taking everything into consideration...I just might break the mortgage today...pay the $1700 penalty and see what it feels like to be living mortgage free


A few years from now, you won't care about the penalty. It will be a distant memory. Pay the fee and be done and start celebrating!


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