FAQ2022-02-01T11:01:29-08:00
Mortgage Penalty Calculators2021-08-03T20:27:07-07:00

The most accurate way to calculate a mortgage payout penalty.

Click on your bank to calculate the penalty to break your mortgage early.

What happens when I break my current Fixed Rate Mortgage contract?

The current conditions of your mortgage contract may no longer meet your needs. If you want to make changes before the end of your term, you can renegotiate your mortgage contract. This is also known as breaking your mortgage contract.

You may want to pay a mortgage penalty and break your mortgage if:

  • interest rates have gone down

  • your financial situation has changed

  • you want to buy a new home and are planning on moving

  • your family situation has changed

  • your home no longer meets your needs

Get advice you can depend on.

One of our Mortgage Brokers will be happy to review your current terms and properly advise you if it is wise PORT your current mortgage, or start fresh with a new product.  Reach out today!

Interest Rate Differential (Mortgage IRD) Explanation2021-08-03T19:24:33-07:00

Interest Rate Differential (Mortgage IRD). What is it?

The interest rate differential is calculation method lenders will use to break your mortgage early if needed. Simply put, depending on how far you are in the term of your product, they will equate the “Interest Rate Difference” using the remaining balance on the term compared to current rates and the balance of interest owing. Be careful! Lenders are very crafty in their calculation methods and rarely disclose properly upfront how much it will cost you to break your mortgage. Many “low rate” products have the worst IRD calculation, costing you thousands! It is important to consult our Mortgage Broker’s to provide you the BEST lender with the BEST IRD formula possible for Fixed rate Mortgages.

Watch this video for a basic understanding.

What happens when a Fixed rate mortgage is paid out before the term ends?

When a Borrower pays out their mortgage during the term, the Lender no longer receives interest on the mortgage, however the expenses related to the mortgage (the “Lender’s Cost”) still exist. If the interest rate available to re-lend funds for the remaining term of the mortgage is less than the Mortgage Interest Rate, there may be an IRD penalty due.

Prepayment penalties occur when a borrower pays more towards principal than what is allowed under the prepayment privileges of their mortgage contract.

If a borrower pays down their mortgage beyond the prepayment privilege, the lender is owed compensation (penalty) by the borrower. In some circumstances that compensation is an Interest Rate Differential (IRD).

IRD is a formula typically composed of three components

1. The difference between two interest rates (“Re-Lending Rate Variance”); typically, the Mortgage Interest Rate and the interest rate that is available for the remaining term, and:

2. The balance that is subject to the penalty, and:

3. The time to maturity

A simplified expression of the IRD is:

IRD = Principal Amount (A) x Re-Lending Rate Variance (B) x Time to maturity (C)

Since the principal amount (A) is paid down over time and the time to maturity (C) is also reducing as time passes during the term, these two elements have a reducing impact on the IRD.

When the IRD increases from one day to the next it is because the “Re-Lending Rate Variance” has increased. Increases in the Re- Lending Rate Variance are caused by the rate available to re-lend the funds for the remaining term having been reduced. This is a result of either:

1. A reduction in the current interest rate for the remaining term, or

2. The ‘remaining term’ used in the calculation having changed to a term with a lower interest rate because of the passage of time (was using the 3-year rate and now using the 2-year rate with a lower rate).

A small change in the current interest rate can have a large impact on the Re-Lending Rate Variance, and thus a large impact on the IRD penalty.

Simply put, if interest rates go up, your penalty will be smaller, if they go down your penalty will larger

Why is the purchase plus improvements mortgage rate lower then typical?2022-01-27T10:24:12-08:00

Good Question. Because of our buying power as a licensed Mortgage Broker through the super broker network Verico Finex Lending. We are offered very low interest rates. But on top of that, in order to earn your business for your next home improvement project; we take a large chunk of our commissions earned by the bank and “buy down” the interest rate!

Why don’t I just borrow money for my renovation from a separate source?2022-01-27T10:25:46-08:00

You can and more then welcome too.  However the benefit of the Purchase Plus Improvements mortgage is you get an incredibly low mortgage rate PLUS a low renovation loan “All in One”.  You will not find any Home equity,  line of credit, personal loan, or credit card that comes close to saving you this much interest.

Insured Vs Uninsured Mortgage Rates. Whats the Difference?2021-10-07T16:02:10-07:00

Insured Vs Uninsured Mortgage Rates. Whats the Difference?

The internet is a fantastic shopping tool.  Allowing us to source the most competitive and affordable products needed.  Yet, searching for a mortgage rate has never been so complicated with all the changes since 2017. Insured vs uninsured mortgage rates really make things confusing.  We are here to help!

Insured Mortgage Rates

Insured mortgage rates (ending in a past tense “ed”) means that the borrower is obligated to pay CMHC mortgage insurance.  This typically occurs when cash down to purchase a property is less than 20% down.

Interestingly,  lenders love Insured Mortgages!  The main reason being the borrower is paying the insurance to the government to insure the loan.  This takes the risk off the lender completely, allowing them to sell the mortgage as a Mortgage Back Security, or on the bond market.  Thus taking it “off the books”.

With less risk, and allowing the bank to free up “liquidity”.  Lenders will typically offer the lowest rates on insured mortgages given their funnel through sell off benefits.

Insurable Mortgage Rates

Insurable mortgage rates (ending in future potential “able”) means that the borrow is not obligated to pay CMHC mortgage insurance, having more than 20% cash down.  But the lender has the opportunity to “back-end insure” the mortgage with CMHC Canada.

This means the lender can still gain all of the benefits of an insured mortgage, with one caveat:  The lender is required to pay the insurance premium.

Most lenders are willing to cover the cost of insuring the mortgage in the “back-end” so they can keep the mortgage off their balance sheet to allow re lending of more funds.  However, because they have to cover the cost to achieve this, you will not usually see interest rates as competitive as insured mortgages so they can recoup the cost.

Uninsured Mortgage Rates

Non insurable mortgages mean exactly what the term implies:  They do not qualify for being insured or insurable.

This can happen for several reasons:

  • The property value is over the insurable limit of 1 million.
  • The property is a rental
  • The property, or the borrower do not fit insurability requirements (to low of FICO score, property is a co-op…. etc.)

If a mortgage does not fit insurability guidelines.  The lender must then keep it on the balance sheet.  This then leads more difficulty “reselling” the mortgage if they ever wanted to, along with higher risk on the lender in the event the borrower defaults (misses payments).  Thus, Non-Insurable rates tend to be the highest in the market.

Thankfully,  Pragmatic Lending has made it extremely simple for you to figure out which rate you will get!  Head over to our Canadian mortgage rates page and use our Rate Finder tool to source the best rate possible along with being the best product!  Remember, the lowest interest rate you find online does not necessarily mean the best rate.  We can’t wait to guide you through the process of saving you thousands!  Schedule a digital visit with us today.

How much are Mortgage Broker Fees?2021-01-15T18:59:59-08:00

Mortgage Broker Fees are not complicated.  The simple answer is:  Nothing! Zero! Ziltch!  A mortgage broker does not charge a fee for their service. We are simply paid a commission from lender we both agree is the best fit for you.

Think of it this way:  If you went to a bank today and sat down with a banking officer;  that banker is paid a commission to earn your business. What’s the only difference between a mortgage broker and the banker?  We represent YOU.  Not the bank! Finding you endless options in a competitive market to make sure you get the best product available.*

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*Private Equity Mortgages, or “B” lending products may require the client to pay  lender or mortgage broker fees of 0-2% depending on complexity of needs.  Please contact us for details.
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