Existing Customers

Prepaying your Mortgage

If you have a closed fixed rate mortgage and you prepay more than is allowed by your prepayment privileges, you will be subject to prepayment charges. You may also be subject to a prepayment charge if you:

  • Refinance your mortgage prior to the end of the term
  • Pay out your mortgage to transfer it to another lender

Refer to the prepayment terms outlined in your Mortgage Commitment within the following sections;

  • Prepayments you can make with no prepayment charge
  • Prepayments you can make with a prepayment charge
  • How we calculate the prepayment charges

For fixed rate mortgages, the prepayment charge is the greater of the two calculations below:

  1. Three months’ interest calculated using the interest rate on your mortgage.
  2. Use the following calculation to estimate three months’ interest:

    [Mortgage amount outstanding] x [Interest rate] x [3 months]
    12

     

    OR

  3. Interest rate differential.
  4. Use the following calculation to estimate the interest rate differential:

    [Mortgage amount outstanding] x [Interest rate – Similar mortgage interest rate] x [Number of months remaining in the term of your mortgage]
    12

 

Interest rate differential is the difference between your mortgage rate and the current rate for a mortgage that most closely resembles the remainder of your term (inclusive of any rate discount or premium on your mortgage), multiplied by the mortgage amount outstanding for the remaining time left on your mortgage up to the mortgage maturity date.

Prepayment charges on a fixed rate mortgage may vary over time for the following reasons:

  • Posted mortgage rates change over time. As posted mortgage rates change, this impacts the interest rate differential calculation since it is based off the difference between your annual interest rate and the current posted interest rate of a mortgage that most closely resembles the remainder of your term.
  • You pay down your principal as you make payments. Part of each payment you make goes towards paying down your principal. As you make payments your outstanding mortgage amount decreases. Provided posted mortgage rates do not change significantly, your prepayment charges will also decrease.
  • The number of months remaining on your mortgage term reduce over time. As you pay down your mortgage, the amount of time remaining on your term decreases, which will impact the interest rate differential calculation.

Using these formulas will give you a good estimate of your prepayment charge. The actual prepayment charge may be slightly higher than the estimated value. For help calculating your prepayment charge, we encourage you to use our Mortgage Prepayment Calculator or contact us at [email protected]

Example:
Jane and John are looking to pay off their mortgage. Their current outstanding balance is $250,000. Jane and John are starting the third year of a 5-year fixed rate mortgage with an annual interest rate of 6.00%, which includes a 0.50% rate discount. They have already used their annual prepayment privilege for the year.

To help with the formulas, this information can also be shown as:

Mortgage Amount Outstanding: $250,000
Interest Rate: 6.00%
Interest Rate Discount: 0.5%
Mortgage Term Remaining: 3 years or 36 months

Step 1 – Calculate the cost of three months’ interest:

(A) Jane and John’s outstanding balance

$250,000

(B) Jane and John’s interest rate, expressed as a decimal:

0.06

(C) Three months’ interest equals:

(A) x (B) x 3 Months
12
=
$250,000 x 0.06 x 3 Months
12

$3,750


Step 2 – Calculate the interest rate differential:
Part 1: Calculate the difference between Jane and John’s interest rate and the current rate of interest:

(A) Jane and John’s interest rate, expressed as a decimal:

0.06

(B) The current posted annual interest rate for a 3-year fixed term Mortgage is 4.0%. If we deduct the 0.50% discount Jane and John received, the applicable current rate is 3.50%, expressed as a decimal:

0.035

(C) The difference between the two interest rates:

(A) – (B) = 0.06 – 0.035 = 0.025

0.025


Note: If the difference between the two interest rates in (C) is less than zero (i.e. a negative number),
this amount will be rounded up to zero for the purposes of the interest rate differential calculation.

Part 2: Calculate the interest rate differential:

(D) Jane and John’s outstanding balance:

$250,000

(E) Number of months remaining on Jane and John’s mortgage:

36

(F) Calculate the interest rate differential:

(D) x (C) x (E)
12
=
$250,000 x 0.025 x 3
12

$18,750


Jane and John will have a prepayment charge of $18,750 since the amount of the interest rate differential at $18,750 is greater than three months’ interest at $3,750.

For additional information on prepayment charges and breaking your mortgage contract refer to the following links: