Breaking a mortgage can be costly as rates fall. How to lessen the penalty
Global News
With lower interest rates available in the mortgage market, some Canadians might be considering a move or refinance. Here's what to know about penalties for breaking a mortgage.
This article is part of Global News’ Home School series, which provides Canadians the basics they need to know about the housing market that were not taught in school.
The Bank of Canada’s oversized interest rate cut this week might have some Canadian homeowners locked into costly mortgages fantasizing about a more affordable rate.
Shubha Dasgupta, CEO of Pineapple Mortgage, says that after years of homeowners renewing into higher rates as the central bank hiked its policy rate, he foresees an uptick in broken mortgages as Canadians seek a better deal with lower rates materializing.
“You’re probably going to see a lot of Canadians breaking their mortgages mid-term that have secured higher rates over the last couple of years,” he tells Global News.
“Taking advantage of the current market conditions, break their mortgage and get into a lower interest rate.”
But the prospect of moving to a new home with a cheaper rate, or refinancing to take advantage of lower monthly payments, comes alongside the daunting penalties that come with breaking a mortgage.
While breaking a mortgage can often rack up thousands of dollars in penalties depending on the type and years left on the term, experts who spoke to Global News say there are some options to mitigate or even avoid those fees entirely.
Breaking a mortgage boils down to exiting the contract with a lender before the maturity date — cutting a five-year mortgage term short after two years, for example.
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