Penalties

With most lenders the answer is no, unless you have an open mortgage or a line of credit on the house. In this case, the bank charges you a higher interest rate to allow the flexibility. The standard closed term carries penalty if you choose to end the contract midterm.
This is a tricky question and it’s a highly important piece of information if you are determined to pay off your mortgage faster and save thousands of dollars in interest. In most case you’ll be told that there are only two ways to calculate penalty. Three months interest is the common penalty for variable rate mortgage while interest rate differential (IRD) is the method to calculate penalty for fixed rate mortgages. In reality there are at least 3 additional methods which are not always clear when reading the mortgage commitment. Those methods make it almost impossible to break the mortgage and shift mid-term. Call us! We would love to share them with you.
In Canada, people tend to move frequently. Some mortgages don’t allow to port, or restrict it to less than 60 days, which means you have to coordinate the sale and the purchase dates. When it’s a simple port with no additional funds, most banks won’t charge you a penalty or will charge you and reimburse later. Credit unions will restrict you to their geographical boundaries. If you have a more complex mortgage (with a line of credit or cash back, for instance) or need more money, the game changes. In most cases you’ll be better off looking for a new mortgage to save you much more. En extra attention should be given to the new mortgage regulations that came into effect in 2018. Under those regulations, porting a mortgage as is becomes sometimes impossible.
Another feature that can save you money is your ability to reduce the penalty at any given time. Some lenders will let you pay 20% of the mortgage mortgage or 40%, depending on your timing, before moving to another lender. This way you’ll save 20% on your penalty. Some will restrict you to give a notice of 30 days or more, which is a big limit on your flexibility.