With the current rate increase, how does this affect my mortgage penalty?

Aug 3, 2017

Now that the dust has settled and all the lenders rates have been adjusted, the next question we have passing through the Mortgage Teacher office is “How does the rate increase affect my mortgage penalty?”

Well to be honest, there’s some good news and some bad news when it comes to calculating your mortgage penalty with the current rate increases.

Believe it or not this rate increase could save some mortgage holders money.

Let us begin by explaining what has happened with the interest rates throughout the month of July 2017:

The 5 year fixed rates: Have increased approx. 0.50/0.60{ea18e790148ddb141722068dfb73f9f74b06205fa18c7d39ece0e7144d0672b8} from 2.64 up to 3.39 range.

The Prime rate: For the first time in 7 years, in July we saw prime rates, lines of credit and variable rate mortgages increase 0.25{ea18e790148ddb141722068dfb73f9f74b06205fa18c7d39ece0e7144d0672b8} from the prime lending rate of 2.70{ea18e790148ddb141722068dfb73f9f74b06205fa18c7d39ece0e7144d0672b8} up to 2.90{ea18e790148ddb141722068dfb73f9f74b06205fa18c7d39ece0e7144d0672b8}.

Let’s grab an example to see how the penalties would be calculated with someone owing approximately 300,000. This is where we get into good news and bad news… for some good news and for some bad. First let’s start with the bad news and the calculations are as simple as this:

Calculation on a variable rate penalty:

$300,000 x 2.70{ea18e790148ddb141722068dfb73f9f74b06205fa18c7d39ece0e7144d0672b8} ÷ 4 = $2025.00

$300,000 x 2.95{ea18e790148ddb141722068dfb73f9f74b06205fa18c7d39ece0e7144d0672b8} ÷ 4 =$2212.50

When it comes to calculating your fixed rate, this has been an ongoing concern in the mortgage world since the last rate decrease in 2008. Here is the best way we can put it: in order to get good output, you typically have to supply good input. Each lender is supposed to have a webpage to help you calculate your penalty. If you type the wrong numbers into a mortgage prepayment calculator, you can’t expect accuracy. It seems some calculators request such obscure information that you don’t know what to type in. It’s almost like some lenders go out of their way to confuse people, hoping they’ll just give up or call the lender’s sales team.

This is why at MT we will sit down and make the call with you.

But in case you are the type to self calculate and crunch numbers on your own here is a list of mortgage calculators for the top 10 banks:

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

To learn more about the rate changes click here.

To see the 5 years bond for fixed rates click here.