Can I Break My Mortgage Early in British Columbia and What Is the Penalty?
This answer covers the law of British Columbia.
Yes, you can usually break a mortgage early, but you may owe a prepayment charge. FCAC says the charge is usually the higher of three months' interest on the remaining balance or the interest rate differential (IRD). With IRD, the lender compares the interest left on your term at your contract rate and at the current posted rate for a similar term, possibly reduced by your original discount, and takes the difference.
In FCAC's example, a $200,000 balance at 6%, with a 4% posted rate and 36 months left, gives about $3,000 under three months' interest versus about $12,000 under IRD. An open mortgage allows prepayment without penalty, and prepayment privileges can be used without penalty only up to your lender's cap. Once you confirm you are prepaying, the lender must give a written statement of the charge and how it was calculated. The prepayment information Code of Conduct does not apply to mortgages entered into for business purposes or held by borrowers who are not natural persons.
To limit a charge, you can use prepayment privileges, ask about porting the mortgage to a new home, or wait until term end if the charge is large. Exact calculations vary, so ask your lender for its figures.
Key takeaways
- The prepayment charge is usually the higher of three months' interest on the remaining balance or the interest rate differential.
- An open mortgage allows prepayment without penalty, and prepayment privileges can be used without penalty only up to your lender's cap.
- On a mortgage not due for more than five years, the borrower may pay it off after five years by paying principal, interest and three months' further interest, but this does not apply to mortgages given by corporations.
- You can limit a charge by using prepayment privileges, asking about porting the mortgage, or waiting until term end if the charge is large.