How To Avoid Paying Prepayment Charges

WHAT IS A PREPAYMENT CHARGE?

Prepayment charges can be avoided by not paying out your mortgage early. There is no prepayment charge when your mortgage is repaid at maturity. Administrative fees for processing the payout and preparing the mortgage discharge document will apply regardless of when the mortgage is paid in full.

Example
Original/Renewed Loan $400,000. 20% Privilege amount $80,000. Principal paydown at sale: $100,000. Prepayment charge applies to portion of principal paydown over 20% = $20,000.

 

Portability

Take your current mortgage interest rate, balance and term with you to your new home – and avoid prepayment charges for paying off your mortgage before the maturity date.

Provided your mortgage is up to date you have the option to move it to a new property. The portability feature applies only when you are selling your existing home and buying a new home with the closing dates for both the purchase of the new and sale of the existing being the same date. Concurrent closings are required.

The “port” of your mortgage would be subject to your mortgage lenders lending policies in place at the time of the request to port, including credit review, property appraisal (if applicable and subject to CMHC or any other High Ratio Mortgage Insurer requirements).

To actually port (move) your Mortgage to a new property, you will be required to pay any applicable appraisal fees and CMHC or any other High Ratio Mortgage Insurer Premiums, if applicable, in connection with the transaction. You will also be responsible for the legal costs required to complete both the sale and the purchase.

You may be subject to prepayment costs on your mortgage if the entire amount outstanding on your mortgage is not transferred to the new property. The prepayment costs will be charged on the amount that is over and above the allowable 20% lump sum privilege amount.

Example
Original/Renewed Loan  $400,000. 20% Privilege amount  $80,000. Principal paydown  at sale  $100,000. Prepayment charge applies to portion of principal paydown over 20% = $20,000.

 

Assumption

Provided your mortgage is up to date, you have the option to have the purchasers of your property assume your mortgage.

This transfer of mortgage to the purchaser(s) is called an assumption of existing mortgage. The purchasers of the property will have to qualify for the mortgage and would be subject to our lending policies in place at the time of the requested assumption. The qualification includes a credit review, credit report and income verification. A property appraisal may also be required and the approval of the assumption may be subject to CMHC or any other High Ratio Mortgage Insurer requirements.

The benefit is that there are no application fees or CMHC or any other High Ratio Mortgage Insurer Premiums, if applicable, in connection with the assumption transaction as there are no new monies and the high ratio insurer premiums have already been paid. There may be a property appraisal cost and legal costs required to complete the sale which must be paid by the respective purchasers and you.

You may be subject to prepayment costs on this mortgage if the entire amount outstanding on your mortgage is not assumed by the new owners.

When prepayment charges apply to your mortgage

Prepayment charges apply when you pay off your mortgage prior to the maturity date or sell your property and pay down more than the allowable privilege amount. When you pay off all or part of your mortgage at maturity there are no prepayment charges.

If you sell your house and want to move it to another property (port) or to have your mortgage assumed by qualified purchasers but the amount of the mortgage needs to be reduced you may incur a prepayment penalty. This would occur if you sell your property and want to port a smaller mortgage to your new home and you need to pay your mortgage down more than the 20% allowable privilege amount. This would also occur if your mortgage is assumed by purchasers who have a larger down payment and wish to assume a smaller mortgage amount which requires a pay down of more than the 20% allowable privilege amount.