Avoiding the Mortgage Refinancing Penalty
If you would like to refinance your mortgage without the penalty payment, RealEstateLawyers.ca has the answer.
Three Months Interest
The penalty is the equivalent of three months of interest on your current mortgage principal. This penalty can apply to both variable and fixed mortgages.
How to calculate it:
\[
\begin{bmatrix}
\frac{Mortgage\,Principle*Original\,Interest\,Rate}{12}
\end{bmatrix}\ast\,3
\]
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Interest Rate Differential
The penalty is the amount of interest lost if your lender were to flip, lending the funds at today’s rates.
How to calculate it:
\[
\begin{bmatrix}
Original\,mortgage\,rate-current\,mortgage\,rate
\end{bmatrix}\ast
\begin{bmatrix}
\frac{Mortgage\,Principle*Original\,Interest\,Rate}{12}
\end{bmatrix}\ast\,months\,remaining\,in\,current\,term
\]
The penalty is the amount of interest lost if your lender were to flip, lending the funds at today’s rates.
How to calculate it:
Minimize your refinance penalty by taking advantage of pre-payment options.
Most mortgages come with prepayment options that allow you to either a. contribute a lump sum against your mortgage each year and/or b. increase your monthly payment.
Either will give you the ability to decrease your mortgage principal and therefore your penalty. For various reasons, it’s a great idea to take advantage of either or both of these options.
