Rising interest rates are imminent, so many are rushing to lock down their current low rates (which is a good idea). For some people, that could mean getting out of your existing mortage early, and while avoiding mortgage penalties may not be possible all together, you can do something to limit them.
Common practice has banks comparing your interest rate to their current interest rate for the term closest to the amount of time left on your mortgage. Since there’s no rule about which rate to use, they can use any rate they want. With a 2% different between one- and five-year rates, that’s a lot of wiggle room. – Money Sense Magazine
So what can you do to combat this? Well, if you know the annual prepayment amount for your mortgage (usually between 10% and 20% of mortgage), ask your lender to apply that before they calculate the IRD (Interest Rate Differential). If you’re working with a good lender, they’ll do this anyways, but unfortunately sometimes you need to ask.
You can also do your research and check out the other options out there, shopping around is recommended for renewals. You can always remind your lender that you’ll take your business elsewhere if they are making this a painful process for you.
It’s always important to be diligent when it comes to your money! Do your research always, and if you ever have questions about this topic (or other mortgage questions), please feel free to contact me.
