Explaining Mortgage Payout Penalties

Explaining Mortgage Payout Penalties - Source Mortgage - Mortgage Experts Alberta
Explaining Mortgage Payout Penalties

Purchasing a home comes with a lot of rules. While most people prefer mortgage rules to those that come with renting a home, homeowners should still be aware of what they can and cannot do. When it comes to prepayment, you’ll definitely want to read through the fine print.


Prepayment: When Penalties Apply

Your lender is in business to make money. That means they would prefer if you paid the same amount over the term of your mortgage so that they can collect that interest regularly. Sometimes that plan gets diverted when borrowers decide to switch it up. Prepayment penalties can happen when:


  • You pay more than your prepayment privileges allow.

  • You borrow more money through your home’s equity.

  • You break your mortgage contract.


Open mortgages don’t generally incur these costs, but closed mortgages will. Before taking a chance, ensure you know exactly how your mortgage functions.


Determining the Cost

Prepayment penalties may also be referred to as a prepayment charge or breakage cost. The fee itself can run you thousands of dollars depending on your situation.  This depends on a few factors such as how much you are paying early, how many months are left until your terms ends, current interest rates, and more. That’s why it’s so important to crunch the numbers before your decide to prepay or break your mortgage.


Keeping Penalties Low

If you are determined to prepay, make sure you do your research first. In some cases, you will be allowed a certain amount of prepayment every year. Make full use of these privileges as soon as possible so that any future penalties are based on a lower mortgage balance. As you are combing through your mortgage contract, ask as many questions as you can think of. Get clarification on anything that seems vague so that you know exactly what you’re getting into. If you are considering breaking your mortgage before the term is up, see if maybe porting your mortgage may be more beneficial. Throughout this process, your mortgage broker will be able to help guide you.


Don’t let the threat of prepayment penalties keep you from making decisions that are best for you and your family. Instead, make informed choices that will help you get exactly where you need to be. Still have questions about payout penalties? Contact us today!



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Source was absolutely great to work with - went above and beyond to help us get everything done when buying our new home. Highly recommended!! Chad and Jenelle Richards Jan 09 2013

Chad and Jenelle Richards
Added January 23rd 2013

Interest Rates

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1yr Term 2.99%
2yr Term 2.69%
3yr Term 2.99%
4yr Term 3.39%
5yr Term 3.04%
V.R.M. Prime-.65 or 2.35%

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