Many Canadian homeowners are considering taking advantage of the historic low rates to refinance their mortgages. But it is important to keep in mind that breaking a mortgage can result in high penalties. A family in Mississauga decided to upgrade from their town house to a detached home, after deciding that a lower mortgage rate would be beneficial to them, specially because they have a baby on the way.
This family was around 2.5 years of a 5-year fixed rate mortgage. When they called CIBC to inform that they would like to break their mortgage to go with another lender, they were surprised to know about the penalty amount. They found out that it would actually cost them $15,000 to break the mortgage and it came down in total of $22,000 when the paperwork came through. The family had no idea that breaking the mortgage would actually cost them so much money.
A CIBC representative informed that a cost is incurred by the bank and a prepayment charge can apply if the client wishes to prepay or break their mortgage. Banks charge interest rate differential on fixed rate mortgages and as rates go down penalties go up. This is a common practice since banks wants to recuperate the money that they would have gotten in their initial loan.
Specialists say that it is better to chose a variable mortgage other than a fixed rate one, in case you are considering breaking it in the future. Variable rate mortgages are far more forgiving, since the highest you are going to have to pay for a penalty in a variable mortgage is three months interest.
After the Mississauga family reached out to the media, CIBC agreed on work with the family and explore the options in order to try to reduce the $22,000 penalty.
Since the pandemic hit, there is an on-going concern that many homeowners facing financial difficulties, that had to differ their mortgage payments or even sell their homes, will also have to face a high mortgage penalty.
If you are looking to refinance or purchase a home over the next few months, contact us today at 877-296-2696 or email us at firstname.lastname@example.org.