log in
This week on RateSpy TV:
- Spring Mortgage Market Begins: Meridian Credit Union kicked the spring market into gear with the first notable rate sale of the season: 1.99%. We pull out the magnifying glass and examine its pros and cons.
- Fed Hike on Deck?: Fed futures are pointing towards a U.S. rate increase next week. But what does this mean for rates on this side of the border? We analyzed past U.S. rate hikes and the effect they’ve historically had on Canadian rates. The findings may surprise you.
- Rate Surveillance: Variable mortgage rates are on the down escalator. We’ll show you why.
- Stars & Dogs: This week’s good, bad and ugly mortgage deals.
2 Comments
Love the show!
Question: do all fixed-rate mortgages impose significant penalties if you sell the property before the end of the term?
Thanks Barry,
When it comes to prepayment charges (a.k.a., penalties), there are three flavours of fixed mortgages:
1) Open fixed mortgages — These have no penalties but the rates are significantly higher. They’re usually not worth it.
2) Closed fixed mortgages with fair penalties — These lenders base their penalty calculations on actual rates. The penalties are usually three-months’ interest unless rates drop a fair bit.
3) Closed fixed mortgages with punitive penalties — Three-month interest penalties are less common with these lenders. They base their penalty calculations on unfavourable rates (e.g., posted rates, a flat 3% of principal, etc.) and the result is often much higher costs to break the mortgage, even if rates stay about the same for your entire term. All the big banks, including BMO, CIBC, HSBC, National Bank, RBC, Scotia and TD, fall into this category.
Here are two very rough rules of thumb:
* If the odds of you breaking the mortgage before maturity are greater than 25%, and you’re getting a fixed term of 4+ years, then lean towards a fair-penalty lender.
* If the rate is roughly the same between a fair penalty lender and punitive penalty lender, and you’re getting a fixed term of 4+ years, and your mortgage size is above average (e.g., greater than $250,000), then lean towards a fair-penalty lender.