📅 3-Months Interest Penalty

• Simple calculation method
• Based on current contract rate
• Common for variable rate mortgages
• Typically lower than IRD
• Easier to predict and budget for

📊 Interest Rate Differential (IRD)

• Complex calculation method
• Based on rate differential
• Common for fixed rate mortgages
• Can be very expensive
• Varies significantly by lender

🎯 Rate-Hold Strategy

• Lock in rates 90-120 days early
• Protection from rate increases
• No cost to secure rate-hold
• Can decline if rates drop
• Strategic timing is crucial

📖 Week 4 Playbook

Complete guide to renewal penalties and rate holds in Canada, including strategic timing and cost-saving strategies.

📚 Mortgage Renewal Resources

Comprehensive resource page covering renewal strategies, penalty calculations, and expert tips for Canadian homeowners.

📄 Renewal Penalty Scenarios

Printable explainer with real-world penalty scenarios, decision flowcharts, and rate-hold timing strategies.

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What is a mortgage renewal penalty?

A mortgage renewal penalty is a fee charged by lenders when you break your mortgage contract before the term ends. In Canada, this is typically calculated as either 3 months of interest or the Interest Rate Differential (IRD), whichever is higher. These penalties can range from a few hundred to tens of thousands of dollars.

How is the 3-months interest penalty calculated?

The 3-months interest penalty is calculated by taking your current mortgage balance, multiplying it by your contract interest rate, dividing by 12 to get monthly interest, then multiplying by 3. For example, on a $500,000 balance at 4.5%, this would be approximately $5,625.

What is IRD and how does it differ from 3-months interest?

Interest Rate Differential (IRD) is the difference between your current contract rate and the lender's current comparable rate for the remaining term, applied to your balance. IRD penalties are typically much higher than 3-months interest when rates have dropped significantly since you signed your mortgage.

What is a mortgage rate-hold and how long does it last?

A rate-hold is a guarantee from a lender that locks in a mortgage rate for a specific period, typically 90-120 days in Canada. This protects you from rate increases while you complete your home purchase or renewal. Rate-holds are particularly valuable in rising rate environments.

When should I consider breaking my mortgage early?

Consider breaking your mortgage early if: rates have dropped significantly (savings exceed penalty), you're selling and need to pay off the mortgage, you need to refinance for debt consolidation, or you're upgrading/downsizing. Always calculate the breakeven period first to ensure it makes financial sense.

Can I avoid renewal penalties in BC?

You can avoid penalties by: waiting until your term matures for renewal, porting your mortgage to a new property, using pre-payment privileges within allowed limits, or negotiating with your lender. Some lenders offer penalty-free products with slightly higher rates. Always review your mortgage contract for specific terms.