Wait for the final months of the term
First use the annual prepayment allowance
Transfer the loan to the new property
The two calculation methods
- Three months of interest on the balance
- The interest rate differential, often costlier
When paying is worth it
Compare the penalty to savings from the new rate. Calculate over the remaining term.
Where to find the amount
Ask your lender for the exact amount in writing. It changes daily.
The interest rate differential, explained
The lender compares your rate to today’s rate for the remaining term.
If rates have fallen, the gap can amount to several thousand dollars.
How to reduce the penalty
- Wait for the final months of the term
- First use the annual prepayment allowance
- Transfer the loan to the new property
- Negotiate a reduction with the current lender
The calculation to run before deciding
Compare the penalty to the savings until the end of the term.
Getting the exact figure
Ask for the calculation in writing, with its validity date.
The amount changes daily, with market rates.
A verbal estimate is not enough to decide.
Negotiating it
A lender often prefers keeping you to collecting a penalty.
Ask for a reduction in exchange for a new term with them.
That negotiation happens before signing elsewhere.
