Almost all mortgages can be refinanced before the term you’ve agreed to is up, although the consequences of doing that can vary quite widely. Here’s some things that may affect the penalty you see when breaking your current mortgage.
– Your mortgage is “open”. In the unlikely event that your mortgage is “open”, their shouldn’t be any substantial cost to changing mortgage providers (no penalties). Although their may be small admin fees depending on your current mortgage provider.
Also see: The difference between “open” and “closed”.
– Your mortgage is a “closed variable”. Generally speaking these are pretty favourable as the penalties will likely be 3 months interest. There are circumstances however where the penalty could be a much higher “administration charge”.
– Your mortgage is a “closed fixed”. Fixed mortgages are a mixed bag as they vary how they are calculated from lender to lender, mortgage to mortgage. The standard ways of calculating the penalty for breaking your fixed mortgage term is (a) 3 Months Interest (b) Interest Rate Differential and sometimes an (c) Administration Charge. The lender will always choose the largest of the penalty calculations so knowing how your lender calculates these before getting into your mortgage is a good idea.
Not all lenders are created equally. Banks, for instance, usually end up having a much higher penalty than their non-bank counterparts because they calculate the IRD (interest rate differential) using very different numbers!
The best advice we can give you is to talk with your Mint broker about your unique situation. That way you’ll get the most accurate idea of where you really sit when it comes to the consequences of breaking your mortgage early.
