# Selling House Early, Mortgage Penalty?



## futuregrowth

Hello,

I purchased a house 2 years ago with a 5 year fixed mortgage from PC Financial. I am looking to sell the house to purchase a larger one. Does anyone know if a penalty will be assessed to me for selling before the mortgage term is up? 

Thanks


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## Homerhomer

If you break the mortgage yes, if you port the mortgage to your new property (assuming the terms of the mortgage allow it) then no. Best to contact your bank (and find someone who actually knows their stuff - not so easy ;-) to clarify before you go ahead.


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## Mall Guy

I agree with the above post, usually a penalty of about three months interest (at the full rate vs the discounted rate), but is often waived if you take out a new mortgage within "X" period. Taking you mortgage with you may be the best option, depending on the rate and other T & Cs.


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## Homerhomer

Mall Guy said:


> I agree with the above post, usually a penalty of about three months interest (at the full rate vs the discounted rate),


Lately because of the very low interest rates and how the mortgages are set up it is rarely the case for fixed term mortgages and penalties are quite significant. Recently I was faced with a similar dillemma as OP, and on 200K mortgage I was assessed 8K of penalties despite the fact my original rate wasn't that high (3.55%), my only option was to port and blend the additional amount at the current rate for the remaining term of the mortgage. Most likely Futuregrowth only option may be to get additional mortgage from the same institution and blend it for another 3 years.

However, better speak to the bank not the forum ;-)


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## donaldmc

Yes i think...So don't do it..


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## Mall Guy

Homerhomer said:


> Lately because of the very low interest rates and how the mortgages are set up it is rarely the case for fixed term mortgages and penalties are quite significant.
> 
> However, better speak to the bank not the forum ;-)


Yes, agree. The interest rate I pay is 3.55% (as well) but for calculating the penalty they default to the "full" non-discount rate (which in my case, buried deep in all those documents, is closer to 5% as I recall) I read somewhere that these 2.99% BMO mortgages are bare bones, and subject to huge break fees . . . $10 to $ 20 K


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## Just a Guy

There are some huge fees lately. One clause to look for is the "one time payment" per year (usually 15-25% lump sum). If you change banks, get them to cut you two cheques and do the lump sum pay down. It will reduce the amount which they can charge the penalties on. Next talk to your new bank, often they will give you some money to transfer your mortgage, which can be put towards those fees.


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## kubatron

Just a Guy said:


> There are some huge fees lately. One clause to look for is the "one time payment" per year (usually 15-25% lump sum). If you change banks, get them to cut you two cheques and do the lump sum pay down. It will reduce the amount which they can charge the penalties on. Next talk to your new bank, often they will give you some money to transfer your mortgage, which can be put towards those fees.



As a mortgage agent I always tell people it's more important to look at rate AND term, but rarely does it happen. As a result people want to save 0.1% on rate but don't realize their interest-rate-differential calculations are from posted to discounted like CIBC, TD, BMO etc do, and as such they get robbed or forced to stay at time of breaking.

People: rate AND term, ok?!

ING for example does discount-to-discount as do a bunch of mortgage-broker-access-only companies such as merix financial.


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## kubatron

Mall Guy said:


> Yes, agree. The interest rate I pay is 3.55% (as well) but for calculating the penalty they default to the "full" non-discount rate (which in my case, buried deep in all those documents, is closer to 5% as I recall) I read somewhere that these 2.99% BMO mortgages are bare bones, and subject to huge break fees . . . $10 to $ 20 K


You can't make a comment like this because "$10-20K" is based on the mortgage outstanding. It could be $1K to $30K for all we know. The penalty is based on mortgage, rate, and term not set in stone.


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## Berubeland

This is something I would investigate long before I had a real estate agent sell my house. In fact I would expect an ethical real estate agent to discuss this issue with their clients before putting the house on the market. That does not really happen.


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## Addy

The huge fees for breaking a mortgage only have the mortgage holders to blame. When we take out a mortgage we specifically ask our broker for lenders with a 3-month penalty. But then we read our mortgage contracts over at least three times, and ask questions about anything remotely questionable so I think we're probably in the minority.


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## Guigz

Maybe the fee is high, but the payback (on refinances) is usually worth it (i.e., I would pay 20,000$ to save 40,000$ in interest).

Do your homework and find out if you come out ahead.


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## junkedBrian

Have a look at this calculator: http://www.canadianmortgagetrends.com/canadian_mortgage_trends/interest-rate-differential-ird.html

Obviously better to talk to your bank, but at the same time, if you're current interest rate is a certain amount and you can lock in much lower, sometimes the balance of interest over the next 5 years will actually be cheaper if you just pay the penalty.. spreadsheets..


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## Optimus

The above is correct.

I work at the biggest bank in Canada as a credit specialist.

The policy around the mortgage penalty is assessed on whichever is higher between the interest differential vs 3 months interest. 

It is however waived at most financial institutions if your new mortgage is equal or higher than the existing one. 

If not, they would make a pro-rated calculation based on your new mortgage. 

Since you're allowed to do a 10% payment on your mortgage each year (most banks), they often will rebate you for that amount. You should double check with PC...


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## ghayoor

Mall Guy said:


> Yes, agree. The interest rate I pay is 3.55% (as well) but for calculating the penalty they default to the "full" non-discount rate (which in my case, buried deep in all those documents, is closer to 5% as I recall) I read somewhere that these 2.99% BMO mortgages are bare bones, and subject to huge break fees . . .
> 
> 
> 
> $10 to $ 20 K
Click to expand...

This is really very panic situation


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## Lephturn

Then you should be on the phone to PC financial!


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## Michelle83

Sorry to bump up such an old thread, I just had a question regarding the porting option. If the mortgage is in one person's name and then they are going to sell and buy a new house and want to port it, can they at that point put another person on the mortgage and re-qualify for a higher mortgage amount using both incomes?


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## kubatron

Michelle83 said:


> Sorry to bump up such an old thread, I just had a question regarding the porting option. If the mortgage is in one person's name and then they are going to sell and buy a new house and want to port it, can they at that point put another person on the mortgage and re-qualify for a higher mortgage amount using both incomes?


Yes they can!

If person x stays on and you add person y, then you're porting the mortgage because at least one mortgagee is staying on. If you were to remove x and add y only then chances are the answer is no.

as for this hysteria about prepayment penalties varying widely.. well, it's bang on. the penalty difference is huge in some cases and thankfully the banks have put up calculators on their sites now to figure out just how huge. ING is by far the market leader (for now) in terms of how they count penalties.

do not go with the big banks. EVER.


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## My Own Advisor

In the end, like a previous comment said, if the fee is high but payback is higher then it's worth it. The math will prove it.


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