Dawna Providenti Blogspot

When I meet potential clients who are inquiring about selling their homes, I always ask them about their current mortgage and whether or not it is a fixed or variable rate. Most often they are locked into a fixed rate mortgage. I always ask them to call their current lender to see how much the balance owing is and what the penalty is to discharge the mortgage.

Many are surprised when they are told that the penalty is thousands, not hundreds. Many consumers assume that the penalty is 3 months worth of interest when in fact it is 3 months interest or the Interest Rate Differential, whichever is greater. Most often unless you are near the end of the your term on your fixed rate mortgage it will be the IRD. The chart illustrates the potential costs in discharging your fixed rate mortgage early.

Current Mortgage Balance                     $300000
Original Interest Rate                                  5.5%
Current Interest Rate                                3.99%
Remaining Term on Mortgage
(in months)                                                    30
3 Months Interest Penalty                           4125
Interest Rate Differential                         $11325

What this could mean when it comes time to selling.

Market Value                                      $350000
Sold Price                                             340000
Penalty and Balance Owing                   311325
Misc Costs such as Realtor Fees,
Title Insurance, Property Taxes              160000
Balance                                                 $12675

Part of my duties and responsibilities as a realtor and mortgage broker is helping my clients make informed decisions on the costs involved in selling their home.