Within the first few minutes of speaking to a new client about mortgages the number one question that I am asked is always ‘what is the best rate ‘ –  invariably clients are referring to the five-year fixed rate .  As such the very next topic discussed is that of mortgage prepayment penalties.

It is been said that statistically 6/10 five year fixed rate mortgages are broken at an average of 38 months, triggering the greater of either a three-month interest penalty or in today’s low rate environment the much more common and somewhat brutal interest-rate differential calculation (IRD).

Clients typical penalties are in the order of 3% to 5% of their mortgage balance when an IRD is used as opposed to the penalty of less than 1% when the penalty is three months interest.

As with entering just about anything in life understanding where the exits are and just what is involved in getting through them is often the most important part of the process.

Following are some links to the newest prepayment charge calculators from the top banks:

• Bank of Montreal
• CIBC
• HSBC
• ING Direct
• Laurentian Bank
• National Bank of Canada
• Manulife Bank
• Royal Bank
• Scotiabank
• TD Canada Trust

These calculators were inspired by this worthy initiative from the Department of Finance.

If you play around with the calculators, you’ll notice something: The penalties vary wildly.

Click here for the full CanadianMortgageTrends.com article.