How do you calculate the penalty for breaking a mortgage?
calculate a penalty. Many penalties for breaking a variable rate mortgage are calculated by adding up 3 months of interest on the remaining principal of the mortgage at the current interest rate. This method is also used on fixed rate mortgages when the 3-month interest total is greater than the total calculated in Method 2 below.
What are the penalties on fixed rate mortgages?
First of all, on fixed rate mortgages, all lenders usually charge you one of two penalties. It is the greater of 3 months interest or the interest rate differential. 3 months of interest is usually a pretty small penalty (less than 3 months of payments). The interest rate differential is a whole other calculation and is determined as follows.
What is the 3-year rate of interest on a mortgage?
Today’s 3-year interest rate is 3.5.%. As per his mortgage contract, the lender will charge him 3-year interest rate or interest rate differential as penalty, whichever is higher. How much payout penalty will John have to pay to break his mortgage contract?
What are the drivers of the mortgage penalty?
One of the biggest drivers of your mortgage penalty is whether you have a variable or fixed mortgage rate. Fixed rate holders pay the greater of interest rate differential or three months interest, while variable rate holders pay just three months interest.