What happens if you break or pay out your mortgage?

What to consider before paying out your mortgage

What to consider before paying out your mortgage

There are a few reasons you might want to pay out or "break" your mortgage — you might be selling your property, switching mortgage lenders, or refinancing to consolidate debt, renovate or pay for a big-ticket item.

One of the first things you should do is understand your mortgage prepayment privileges. These privileges, which are spelled out in the terms of your mortgage agreement, including your latest renewal, may offer you flexible payment options without having to pay a prepayment charge.

What does it cost to pay out your mortgage?

The terms of your mortgage agreement will determine if you have to pay a prepayment charge and if so, how it's calculated:

  • If you have an open mortgage:
    Whether you have a fixed or variable interest rate, you can pay off your entire open mortgage without paying a prepayment charge.
  • If you have a variable interest rate and a closed mortgage:
    You will typically be required to pay three months of interest. Check with a Mortgage Specialist for exact details on the cost.
  • If you have a fixed interest rate and a closed mortgage:
    This one is a bit more complicated. Your prepayment charge will be the greater of:
    1. Three months' worth of interest or
    2. The Interest Rate Differential (IRD) amount.

What’s the IRD amount?

It’s the difference between the principal amount you owe at the time of the prepayment and the principal you would owe using the posted interest rate for a similar mortgage, minus any rate discount you received.

Port your mortgage

If you’re selling your current home and moving to a new one, you may want to port your mortgage. Your principal amount, interest rate, remaining term and amortization period move from your current to your new house — and you won't have to pay a prepayment charge.

Take equity out of your home

As you pay your mortgage principal or your property value increases, you build up equity in your home. You can tap into that equity with a Home Equity Line of Credit (HELOC), like a TD Home Equity FlexLine, which often offers lower interest rates than unsecured lines of credit.

Renew your mortgage early

You may be able to renew your mortgage early without paying a prepayment charge — at TD you can renew 120 days before your mortgage maturity date. You can also renew early at any time, but you may have to pay the charge. A Mortgage Specialist can help you understand the cost.

Other useful information

Mortgage Prepayment Calculator

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