Most mortgages have a fee to exit the contract, but calculating it can be confusing and expensive. You have to pay the greater of 3 months interest or the IRD, Interest Rate Differential. The reason for the penalty is to compensate the lender for the loss of expected profit. If a borrower promises to borrow money for five years, the bank counts on five years of interest payments. Reneg on that deal, and the lender needs to recoup some of that loss revenue. The issue is how this penalty is calculated and, for the most part, each lender has a slightly different variation. This is one of the top 3 complaints to the banking Ombudsman. In fact in 2011 there was a class action suit against CIBC in B.C. and Ontario.
If you are in a variable rate mortgage, the penalty is most often 3 months worth of interest, but the IRD is more difficult to calculate. In it's most simplistic form, this is how it looks:
(posted rate at original mortgage date - posted rate for remaining term) / 12 = IRD Factor * outstanding mortgage balance * number of months remaining in term + lender discharge and mickey mouse fees.
Most big bank websites offer their own online calculator, but for the most accurate answer, consider calling your mortgage adviser and ask for the exact amount as if you were to break your mortgage today.
This afternoon Finance Minister Charles Sousa announced an increase to the land transfer tax (LTT) rebate for first-time buyers from $2,000 to $4,000. The announcement came as part of Ontario’s Fall Economic Statement and was specifically to help first-time buyers enter the housing market. Buyers can start claiming the rebate effective January 1, 2017.
It’s a change we lobbied hard to achieve and you should all be proud of our accomplishment. There’s still more to be done. Other factors like a lack of housing supply are impacting prices and REALTORS® are working with government to address those issues.
But for the young couple entering the housing market, today’s announcement is good news. It’s also a testament to the strength of the REALTOR® voice at Queen’s Park.
At this time last year, Ontario REALTORS® were fighting to stop what would have been the largest tax increase on home ownership in a generation – the municipal land transfer tax. Today, we’ve helped usher in one of the largest tax breaks in a decade.
Buying and Selling Residential, Condominium and Investment real estate in the Waterloo Region since 2008. Oh, and also Ottawa! :-D