Sandra Forscutt Mortgages

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What Happens If You Break Your Mortgage?

When you signed your mortgage, everything looked right. The amounts were comfortable for your income, the term duration was sufficient, and you had found your forever home. All was well. But that was then.

As things stand currently, the conditions of your mortgage no longer meet your needs. Do you stick with an untenable situation, or can you make some changes?

Breaking a Mortgage

It is indeed possible to change your mortgage contract by renegotiating it before the end of its term. This is known as breaking a mortgage contract.

You might consider breaking your contract if:

  • Interest rates are now lower: a new mortgage might be cheaper, even after factoring in penalties
  • Your income or financial situation has changed: you may wish to repay earlier if your income increases or extend the repayment period if your finances take a hit.
  • You want to sell the property.
  • You plan on buying and moving into a new property. 
  • Your family circumstances have changed: having kids or getting a divorce might require you to sell the house or get a bigger one.
  • The home you purchased no longer meets your needs, you need to relocate for work, or you no longer wish to own the property.

This will, however, come at a cost to first-time home buyers and previous homeowners alike.

Cost Of Breaking a Mortgage Contact

The costs of breaking a mortgage are dependent on the type of mortgage. For example, an open mortgage allows you to break the mortgage at no cost. On the other hand, a closed mortgage is based on you repaying the mortgage over a fixed term.

If you break the mortgage before the term ends, the bank loses out on months or years of interest repayments. As such, they charge you a penalty to break the mortgage.

Some of the fees the lender might impose on you include:

  • A prepayment penalty 
  • Appraisal fees
  • Administration or processing fees
  • Reinvestment fees
  • A mortgage discharge fee (a fee charged for discharging your current mortgage and registering a new one)
  • Any cashback you received with the mortgage

These costs can be punitive, which makes the decision to break a mortgage a rather weighty one. So let’s look at the pros and cons of breaking a mortgage.

Pros

  • You pay less interest than you would originally have paid 
  • You repay your mortgage faster if you stick to the same repayment installments
  • You can lock in lower rates for the renegotiated mortgage. This can also help you budget
  • You lower your monthly carrying costs

Cons

  • You might not get another mortgage after opting out of the current one due to economic factors
  • You need to pay penalty fees and probably some cashback monies received
  • You might end up paying more than you are trying to save once you factor in all the fees and penalties
  • A new mortgage will require you to pass the mortgage stress test again

Get Expert Advice

You undoubtedly have good reason to be considering breaking your mortgage. Before you do it, however, it’s prudent to understand the costs and implications of doing so. 

No one understands these matters better than the mortgage brokers at Metro Mortgage Group. So, if you would like to review your options with a knowledgeable, caring expert, reach out to us and let’s get you a deal that works for you.

Don’t go in blind; call me.

Are you ready to purchase your first home? Reach out to me directly or start your application here: www.sandraforscutt.ca/mortgage-application/

Don’t hesitate to contact us with any questions you may have.

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