## 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.