How To Calculate Prepayment Charges

How To Estimate Three Months’ Interest (90 days)

Step 1

A) Calculate the remaining balance of the mortgage

Step 2

B) Your current annual interest rate expressed as a decimal
(for example, 6.75% = .0675)

Step 3

C) A x B = C

Step 4

D) C ÷ 4 = D
D = Your estimated three months’ interest amount

Three Months’ Interest Example:

1. $359,000 A) Remaining balance of the mortgage
2. .0525 B)  5.25% interest rate on mortgage
3. $18,847.50 C) Annual interest on balance at current rate A x B = C
4. $4,711.87 D) D = Your estimated three months’ interest amount C ÷ 4 = D

 

How To Estimate Interest Rate Differential (IRD)

Follow these steps to estimate the interest rate differential amount:

Step 1

____________ A) The present annual interest rate on your existing mortgage.
____________ B) The current annual interest rate for a new mortgage with a term that is the next closest to the remaining term of your existing mortgage.
____________ C) A – B, which is the difference between your existing interest rate and the current rate.
Express C as a decimal; for example, 6% = 0.06 (if C is negative IRD does not apply).
____________ D) The remaining balance of the mortgage.

 

Step 2

____________ E) The number of months left until the mortgage maturity date (rounded down).
____________ F) (C x D x E) ÷ 12 (estimated interest rate differential amount).

The larger amount from method 1 or method 2 is the approximate cost of prepaying your mortgage in full today.

Interest Rate Differential Example:

Follow these steps to estimate the interest rate differential amount:

9% = 0.09 A) The annual interest rate on the mortgage.
6% = 0.06 B) The current annual interest rate for a new mortgage with a term that is closest to the remaining term in the existing mortgage.
3% = 0.03 C) Equals A – B, which is the difference between the existing interest rate and the current interest rate. Use the decimal form for calculation; thus, 3% = 0.03.
$100,000 D) The amount to be paid off.
36 months E) The number of months left until the mortgage maturity date.
$9,000 F) Equals (C x D x E) ÷ 12 [(0.03 x 100,000 x 36) ÷ 12] = 9,000 (estimated interest rate differential amount)

In this example, the estimated cost to pay off the mortgage before the maturity date is $9,000 because this amount is higher than the three months interest costs. Please call us at 1-855-767-3031 for the exact cost of paying off a mortgage before the maturity date. In this example, the exact interest differential amount would be lower than the amount estimated above.