# Breaking a mortgage



## sagsal (Apr 7, 2009)

Is there anyway a bank will waive part or all of the breakage fee to stay with them but go into a lower rate mortgage?

I find this interest rate differential absurd - mine is outrageous and I am now stuck!

Any thoughts


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## Sampson (Apr 3, 2009)

If you break and stay (early renewal), you'll be able to negotiate (to a small extent).

If you break and go, not likely - they'll make sure to ding you as hard as legally possible.


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## Ben (Apr 3, 2009)

There are 2 ways to calculate the penalty. Calculation can vary between banks.
http://www.fcac-acfc.gc.ca/eng/publications/mortgages/penaltycharges-eng.asp

I broke and stayed recently. I tried to negotiate with my bank with no success, and paid the 3 months interest penalty. Still not entirely sure why some banks in certain situations will waive the fee and others won't.

Just before I broke and early renewed, 2 of my friends went through the same process with a Big 5 bank, and had their fees completely waived. They used some of the threathening tactics like consolidating all accounts elsewhere, been good customer for so many years, etc. 

Canadian Mortgage Trends will have some good posts recently on the topic - good resource.


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## canabiz (Apr 4, 2009)

I guess the banks have this in place to protect themselves from this kind of situation. They are in the money-making business after all.

Your penalty will depend on quite a few factors, the amount of your mortgage, the length of your term, whether you got a *discounted* rate in the first place and the current and posted interest rate. 

Your best bet is to negotiate with your mortgage rep and if he or she won't budge then to do some calculations and see if you can save by switching to a lower rate, factoring in the penalty, the discharging fee and the legal fees (if applicable)

You will often find it is like trading 4 quarters for a loonie but it varies for each individual.


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## George (Apr 3, 2009)

sagsal said:


> Is there anyway a bank will waive part or all of the breakage fee to stay with them but go into a lower rate mortgage?
> 
> I find this interest rate differential absurd - mine is outrageous and I am now stuck!
> 
> Any thoughts


The fees for breaking the mortgage contract are set out in the contract itself (typically it's 3-months interest or the "interest rate differential", whichever is higher). You can just call the bank and they'll be able to tell you how much the fee would be to break the mortgage.

Assuming you have enough equity, you could break the mortgage and refinance elsewhere, and roll the penalty into the new mortgage balance.

A better option may be to call the bank and ask about a "blend and extend". This lets you renew early and take advantage of the lower rates - your new rate will be calculated based on how much time is left in your term, the rate you agreed to originally, and the rate as it stands today. There shouldn't be any penalty for a blend-and-extend.

For example, if you are 2.5 years into a 5-year term at 6% but rates for 5-year terms have dropped to 4%, you could blend-and-extend into a new 5-year term, with a rate of 5%. Essentially, you're paying 6% for the remaining 2.5 years in your first term, and 4% for the latter 2.5 years.


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## Sampson (Apr 3, 2009)

Be wary of the 'blend and extend'.

Banks always push this because for the most part, they make more money from this, i.e. you may well be better served paying the penalty, then taking the full principle at the lower rate.

Just make sure you calculate different scenarios, and make sure you have a clear metric for comparing. Simply comparing interest paid is often not enough, you want to also consider if you will continue making the same payments despite the lower required minimum, or pocket the extra cash 'saved'.


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