mortgage Archives - Janice Leffler

Many homeowners, especially those who haven’t spoken to a mortgage professional, don’t fully understand mortgage penalties. That’s not a surprise. There are a lot of things to think about when considering a purchase. How you finance your new home—and what the implications are—can vary considerably.

Mortgage penalties are worth looking into and understanding before locking yourself into your mortgage for a period of time. Financing a home can be overwhelming. If you’re considering refinancing, selling, making a lump sum payment, or need a way out, read this first.

What Are Mortgage Penalties?

The most common mortgage penalty people encounter is a prepayment penalty.

Did you know? Your lender doesn’t want their money back early! That’s because they earn guaranteed interest on the loan. This helps them budget and profit.

Below are some common types of prepayment penalties:

Prepayment or Overpayment

If you make a lump sum payment on your mortgage or increase the regular payments by too much, you could be outside the terms of your mortgage agreement.

Transferring

If you move your mortgage to another lender before the end of your term, that is considered breaking the mortgage agreement you made.

Early Re-Payment

If you sell your home and pay off your lender with the proceeds, leaving you without a mortgage, that also breaks the agreement.

Breaking your mortgage for these—or any other reason—almost always results in financial penalties.

What Determines the Size of a Mortgage Penalty?

The amount of the penalty that could be owed will be based on a few factors:

The amount of pre- or over-payment
Interest rates (existing and new)
The type of mortgage (open, closed) and the type of rate (fixed, variable)

How to Reduce or Avoid Prepayment Fees

The simplest answer is to wait until the end of your existing term to make changes. If that’s not possible, review your circumstances:

Fixed or Variable Rate?
If you have a variable rate and you’re breaking the mortgage in favour of a fixed option, first check to see if you can lock in a rate under your existing terms.
Making a Lump-Sum Payment?
Review the terms of your mortgage to see what your annual prepayment allowance is. Most mortgages will let you make some fixed lump sum payments without any penalties.

Penalties for Non-Payment

There is also a flip side to penalties: incurring fees for late or missed payments.

Any payment received after the due date will incur a fee.
Lenders will also report missed payments to the credit bureau, which impacts your credit score.

Tip: Before you miss a payment, notify your lender. You may be able to:

Defer a payment
Skip a payment
Make other arrangements

Some lenders also offer a mortgage payment holiday, allowing you to skip or defer payments for 3–6 months (sometimes longer).

If you’ve already missed a payment, make it up as soon as possible to avoid a quickly escalating situation.

When Paying a Penalty Can Be Worth It

Sometimes paying a penalty makes financial sense. For example:

If you’re locked into a higher-rate mortgage
If breaking your mortgage and securing a lower rate saves you more than the penalty costs

Your mortgage professional can run the numbers and help you decide if this is worthwhile.

An Alternative: Open Mortgages

If you’re likely to break your mortgage agreement, consider an open mortgage.

This is a great short-term solution if you’re expecting an inheritance, planning a move, or anticipating a major life change such as marriage or divorce.
You can pay it off at any time without penalty.
The trade-off is higher interest rates compared to closed mortgages.

Whatever type of mortgage penalty you might be facing, my best recommendation is to talk to an expert for advice before making commitments.

Your mortgage professional, lender, or broker can walk you through the fine print and provide advice tailored to your situation. Get in touch with me today, and I can help you with your questions and get you in touch with a mortgage expert in Comox Valley.

Recent changes in the housing market present exciting opportunities for homebuyers. As your Comox REALTOR®, I can guide you through these updates. A mortgage broker can help you build effective plans to achieve homeownership goals. In this way, you can establish what you are able to afford. This is one way to streamline your search for a property.

Knowing these new rules and guidelines will help with strategy and future goals of climbing the “real estate ladder.”

Expanded amortizations for first-time homebuyers

Starting December 15, first-time homebuyers will have access to 30-year amortizations. This change can be of benefit in two significant ways:

Lower income requirement. By extending the amortization period, the income required to qualify for a home purchase decreases. This means more buyers can meet the necessary criteria.
Reduced monthly payments. A decrease in monthly payments will make homeownership more financially manageable. For instance, on a $600,000 purchase, the monthly payment could drop by approximately $250, providing greater flexibility in budgeting.

Increased insured mortgage cap to $1.5 million

High income, but difficulty saving for a down payment? An increase in the insured mortgage cap to $1.5 million can accelerate your path to homeownership. Previously, purchasing a $1.4 million home required a down payment of $280,000. Now, as of December, clients can potentially purchase the same property with a down payment of about $115,000. This will save a whopping $165,000.00 in upfront requirements.

This change is also advantageous for “right-sizers” who want to downsize. It allows the buyer to allocate more funds from the sale of their larger home toward retirement. Then you can put less down on a new, smaller property. However, you should keep in mind that closing costs, typically between 2 and 4 percent of the purchase price, need to be accounted for in each scenario.

For a $600,000 purchase price, anticipate that clients will need an annual income of approximately $150,000 to meet today’s stress-test requirements.

Switching lenders at renewal: A business opportunity awaits from mortgage changes in BC real estate

While you may not initially think about how switching lenders can benefit you, it’s essential to understand that mortgages encompass more than just interest rates. The Canadian Mortgage Charter now allows insured mortgage holders to switch lenders at renewal without undergoing a stress test. This change opens up opportunities for borrowers to shop around for better rates and terms, potentially saving thousands of dollars.

Tax-efficient savings strategies around mortgage changes in BC real estate

As well, two important tax-efficient savings methods have emerged that can empower you on your journey to homeownership:

RRSP withdrawal limit increase. The amount that can be withdrawn from an RRSP has increased from $35,000 to $60,000 per borrower. This change provides additional funds for you to put toward your down payment.
First-time home saver account. Introduced in 2023, this account allows you to save $8,000 per year in contribution room, which reduces your taxable income.

Unlike RRSP withdrawals, funds from this account do not need to be repaid and any gains earned within it are tax-free. This account, however, has a sunset clause in 2028, making it vital for clients to act quickly to maximize its benefits.

These recent changes create valuable opportunities for purchasers. Make informed decisions on your path to homeownership. Speak to your mortgage broker about the implications and opportunities surrounding expanded amortizations, increased mortgage caps, flexible lender options, and tax-efficient savings strategies.

Call me if you would like to connect with a competent, knowledgeable, and experienced mortgage broker.

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Understanding Mortgage Penalties