Before you list an Edmonton home, get your mortgage payout statement — because the prepayment penalty for breaking your term early is the seller cost most likely to change your plans, and it ranges from a few hundred dollars to well over ten thousand depending on your mortgage type and how rates have moved. Commission and legal fees are predictable; the penalty is personal. Knowing it before you price lets you choose intelligently between selling now, selling at renewal, or porting the mortgage to your next home.
How is the penalty calculated?
On most variable-rate mortgages, the charge is three months’ interest on the balance. On most fixed-rate mortgages, it is the greater of three months’ interest or the interest rate differential (IRD) — a calculation comparing your contract rate to the lender’s current rate for a similar remaining term, applied across your balance and time left. Posted-rate lenders’ IRD math can produce much larger penalties than discount lenders’. I explain the formulas in three months’ interest vs IRD and breaking a mortgage early.
What are your three options once you know the number?
Sell and pay it, when the move matters more than the charge and the net proceeds still work — the real-estate side of that net sheet is in the companion guide to seller costs. Wait for renewal, when the penalty disappears, if your timeline is flexible. Or port the mortgage to the new home, keeping your rate and term and avoiding the penalty where you qualify — the mechanics are in porting your mortgage in Alberta. Each option prices differently once the real penalty is known, which is why estimates from online calculators are not enough: request the lender’s own payout figure, in writing, as of your expected sale window.
Photo via Wikimedia Commons.
When should you check?
At the same time you order your home evaluation — before photos, before pricing, before you fall for the next home. Run the check through a Mortgage Renewal Check if your term is ending, or the Pre-Approval & Refinance Check if you are buying next and porting or blending is on the table.
“We almost listed before Travis checked our penalty. Porting instead saved us a five-figure charge.” — Google review excerpt
Listing this fall? Get your real payout number first. Call (780) 722-5621 — I will try to call you this week, or reply with a good time and we will set a phone appointment to map sell-now, wait, or port on your actual figures.
By Travis Bannert, Realtor and Mortgage Broker
Travis Bannert, Mortgage Broker | Next Door Mortgages, BFL Dominion Lending Centres | (780) 722-5621 | nextdoormortgages.com