If you’re like most people, your home is your biggest investment. So, when it’s time
to sell, you want to get the best possible price for it. But did you know that if you
have a mortgage on your home, the bank may impose a penalty if you pay it off early?
Most mortgages in Canada are “closed” mortgages, which means that if you pay them
off before the end of the term, you will be charged a penalty. The penalty is typically
3% of the outstanding principal balance of your loan, or six months’ interest,
whichever is greater.
So how can you avoid these penalties and save yourself some money? One option is
to take out a home equity loan. A home equity loan is a great way to get the money
you need to pay off your mortgage penalty. This type of loan allows you to borrow
against the equity in your home, using your home as collateral. You can usually get a
lower interest rate on a home equity loan than you would with a personal loan,
making it a more affordable option. Plus, you can often choose the repayment
schedule that works best for you.
Home equity loans are typically open mortgages, which means there is no penalty for
paying them off early. And because they are secured by the equity in your home, they
often come with lower interest rates than other types of loans.
So, if you’re thinking of selling your home and want to avoid paying a big mortgage
penalty, consider taking out a home equity loan first. With the extra cash in hand, you
can pay off your mortgage and pocket the savings!
How to save on the bank mortgage penalty
If you’re like most people, you probably don’t want to spend any more money than
you have on your mortgage. Unfortunately, if you break your mortgage contract with
your bank, you’ll likely be charged a penalty. But there are some ways you can reduce
the amount of this penalty.
The first way to save on the bank mortgage penalty is to shop around for a new
mortgage before you break your old one. You can usually negotiate a lower rate with
another lender, which will offset some of the penalty fees you’ll have to pay.
Another way to reduce the penalty is to ask your current lender for a “mortgage
portability” clause. This allows you to transfer your mortgage to another property
without incurring a penalty. Not all lenders offer this option, so be sure to check with
yours in advance.
If you’re still set on breaking your mortgage contract, there are some things you can
do to minimize the costs. Try prepaying as much of the remaining principal as
possible before closing the old loan. This will lower the interest charges on the new
loan and help offset the penalty fees.
You can also try negotiating with your lender for a reduced penalty fee. This is more
likely to be successful if you have a good reason for breaking the contract (such as
getting a new job in another city). Be prepared to show documentation of your
circumstances and be willing to compromise on other terms of the loan in order to get
a better deal.
Banks are motivated to keep you as a customer, so if you threaten to leave, they will
likely waive your mortgage penalty. If not, a home equity loan is an option that can
save you money and help you pay off your mortgage faster. Whether you’re looking
to save money on your mortgage penalty or want to pay off your mortgage faster, a
home equity loan is worth considering. By using the equity in your home, you can get
a lower interest rate than you would with a personal loan or credit card, and you may
be able to deduct the interest on your taxes. Just be sure to shop around for the best
rates and terms before signing anything.