Mortgage Blog

Better Service & Rates

Are you exposing yourself to a potentially sky-high mortgage penalty?

October 4, 2020 | Posted by: Danny Duong

'Internal lender stats suggests that greater than 60% of mortgages will be paid out or restructured at an average of 36 months' - Dustan Woodhouse, Author of Be The Better Broker series


With that in mind, in addition to comparing the contract rate, always consider what could impact your OVERALL cost of borrowing. For example, not all lenders calculate penalties the same way even though they use the same terminology (specifically the Interest Rate Differential or 'IRD' penalty). Below you will see the IRD penalty for a borrower who took out a 5 years fixed rate mortgage 1 year ago in Nov 2019 and how much two different lenders would charge for breaking the same mortgage early now. Lender B will charge them $8500 more than lender A. How can that be you ask? Isn't an IRD penalty an IRD penalty an IRD penalty? Nope! Most consumers do not know, but the IRD penalty amount could be drastically different depending on if the lender uses posted or discounted rates in their IRD formula. It's clear that you would be better off with lender A if all other features of the mortgage were equal.


So be sure to consult with a qualified Mortgage Professional who can help you explore different lenders and choose a mortgage that is best aligned with your short and long-term plans (personal and financial).


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