Can I Pay Off My Mortgage Early When Selling My House in Ontario?

Paying off a mortgage when you sell is common, but whether it costs a penalty depends on your contract. A closed-mortgage prepayment penalty is usually the higher of three months' interest or the interest rate differential (IRD). Lenders generally use the IRD when the mortgage rate is above the current rate and the contract was signed less than 5 years ago.

You may be able to lower the penalty by using yearly prepayment privileges, porting the mortgage to a new home, or waiting until the end of the term. An open mortgage can be broken without a prepayment penalty, though administration, appraisal, reinvestment and discharge fees may apply, and you may have to repay any cash back. If your lender is a federally regulated financial institution, it must give you a written statement of the calculation when you confirm a prepayment, including the comparison rate and remaining term used.

Once a mortgage not due until after five years has run more than five years, you may pay it off by paying the principal and interest owing plus three months' interest in lieu of notice. Your lawyer can explain how the lender is paid and the mortgage discharged at closing.