I have had a few clients in the last couple of years who due to various circumstances needed to sell their home and relocate, or downsize before their mortgage term was up. Not unusual. But what you need to consider are the costs associated with doing so. Aside from the obvious ones, like possible net loss, once you factor in commissions, land transfer tax, moving costs etc. is the NOT so obvious cost. Breaking your mortgage prematurely. Penalties? What penalties?
Here are the basics:
If you have a fixed rate mortgage, the penalty will be the greater penalty of two options:
OPTION 1 – Three Months’ Interest:
OPTION 2 – Interest Rate Differential:
In this example “OPTION 2 – Interest Rate Differential” is higher so you would pay a $6,000 mortgage penalty fee. YIKES!
If you have a variable rate mortgage the fee is simply calculated based on 3 months interest.
Make sure to talk to your lender about the mortgage penalty fee. It is possible that the penalty may cancel out any savings you would have to re-finance at a lower rate. You should know how much it will end up costing you before you break your mortgage!
If you’d like some advice on this subject or just want to talk real estate “buzz”, I’m a phone call or email away.
