Calculate your prepayment charge and determine whether it is to your advantage-or disadvantage-to break your current closed mortgage.
This quick calculator will show you how much it may cost to prepay your mortgage, in part or in full.
Before getting started, please keep the following in mind:
- The tool estimates the prepayment charge (the cost to break the term of your mortgage) as of today's date on fixed or variable mortgages(1) having a closed term. Please contact us to find out your exact prepayment charge.
- The prepayment charge will be the greater of 3 months interest or interest for the remainder of the term on the amount prepaid calculated using the interest rate differential
for fixed rate mortgages, and the 3 month interest charge for variable rate mortgages. - To give you a more accurate estimate of your prepayment charge, you may need to have your original mortgage documentation on hand to answer some of the questions below.
Understanding Prepayment Charges
Prepayment charges are connected to mortgages where the interest term is 'closed'. The closed term allows for prepayments up to 10% of the original mortgage balance once per anniversary year. We call this your "Annual Prepayment Option". For example, if you took your mortgage out for $250,000 on February 1st, you may make a payment of $25,000 every year between February 1st and January 31st. If you pay more than 10% of the original balance, you must pay a prepayment charge on the entire balance you wish to prepay.
You can reduce the outstanding balance of your mortgage, and therefore your prepayment charge, by exercising your Annual Prepayment Option before you pay off the mortgage.
Learn more about mortgage prepayment charges below, then continue to the calculator to estimate your prepayment charge.
How are prepayment charges calculated?
When do I have to pay a prepayment charge?
Fixed and Variable
Open and Closed Terms
Long and Short Terms
1 You cannot prepay your mortgage unless all your payments are up to date.
FAQs
For Fixed rate mortgages, the prepayment charge will be the greater of 3 months interest or interest for the remainder of the term on the amount prepaid calculated using the interest rate differential. For variable rate mortgages, it is 3 months interest.
How to calculate prepayment charges? ›
You can calculate the prepayment charges by determining the different between the original interest rate and the current interest rate. For example, if the original interest was 7.5% and the current rate is 5.5% the difference is 2%. Multiply the principal amount by the difference in percentage – 200,000 x 0.02 = 4000.
How to calculate the prepayment penalty? ›
Mortgage Prepayment Penalty
- Outstanding balance of your mortgage.
- Multiply the outstanding balance of your mortgage by the annual interest rate on your mortgage.
- Divide the answer by 12 months per year to get the monthly interest payable.
- Multiply the answer by 3 (months)
- Current mortgage interest rate.
However, if your mortgage includes a prepayment penalty clause, there can be costs associated with paying it off early. If you want to refinance your mortgage within its first year, for example, you may have to pay the lender as much as 2% of the remaining loan balance.
How do you calculate the 3 month interest penalty? ›
The 3 months' interest penalty is more straightforward than the interest rate differential. Simply take your current mortgage principal and multiply it by your current mortgage rate, divide by 12 months to get a monthly penalty and multiple it by 3 to account for three months.
How to calculate prepayment fees? ›
For Fixed rate mortgages, the prepayment charge will be the greater of 3 months interest or interest for the remainder of the term on the amount prepaid calculated using the interest rate differential. For variable rate mortgages, it is 3 months interest. When do I have to pay a prepayment charge?
What is the prepayment formula? ›
CPR = 1 - (1 - SMM)^(12)
This formula is used to annualize the monthly SMM in order to obtain the Conditional Prepayment Rate (CPR). The CPR is an annual measure representing the estimated percentage of a loan pool's principal that is expected to be prepaid ahead of schedule in a given year.
How to calculate mortgage early repayment charges? ›
An early repayment charge is usually calculated as a percentage of your outstanding mortgage balance. This is typically between 1% and 5% so it could amount to thousands of pounds. Some lenders reduce the rate you pay the longer you've had the deal.
How much is a prepayment penalty on a mortgage? ›
How much are prepayment penalties? Mortgage loans with an early payment penalty are rare today, but when applicable, the fee can be steep. The penalty can be 2 percent of your loan balance within the loan's first two years and 1 percent of your loan balance in year three.
Can I prepay my mortgage without penalty? ›
Most mortgage lenders allow borrowers to pay off up to 20% of the loan balance each year. Instead, a mortgage prepayment penalty typically applies in situations such as refinancing, selling or otherwise paying off large amounts of a loan at a time.
The Downside of Mortgage Prepayment
Prepaying your mortgage ties up your funds in your home, potentially leaving you with less liquidity for other financial needs or opportunities.
What states do not allow mortgage prepayment penalties? ›
Most states allow lenders to impose a fee if borrowers pay off mortgages before a specific date – typically in the first three years after taking out a mortgage. While Alaska, Virginia, Iowa, Maryland, New Mexico, and Vermont have banned prepayment penalties, other states allow them with certain conditions.
What is 6% interest on a $30,000 loan? ›
For example, the interest on a $30,000, 36-month loan at 6% is $2,856.
What is the 3% prepayment penalty? ›
This fee is typically structured as a percentage of the remaining loan balance. For example, a loan might have a fixed prepayment penalty of 3%. In this situation, the borrower would have to pay back the remaining balance plus 3% of the same if they wanted to pay off the loan in full.
What is the prepayment penalty for 6 months interest? ›
Example Of A Prepayment Penalty
An interest-based mortgage prepayment penalty is charged if the loan is paid off within the first 3 years. With 6 months of interest charged, your lender would calculate $250,000 x . 05 = 12,500/12 months = $1,041.66 x 6 months = a fee of $6,250.
How to calculate pre-payment? ›
Calculate your prepayment penalty using a percentage of interest. Many lenders charge a prepayment fee based on a percentage of interest paid within a certain time period, perhaps six months. For example, a common penalty is 80 percent of six months' interest.
How do I calculate my early repayment charge? ›
An early repayment charge is usually calculated as a percentage of your outstanding mortgage balance. This is typically between 1% and 5% so it could amount to thousands of pounds. Some lenders reduce the rate you pay the longer you've had the deal.
