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How No Bull Mortgages can lower your prepayment penalty

How No Bull Mortgages can lower your prepayment penalty

Posted on: April 08, 2014
Author: Staff

On August 1, 2013, we decided to do things differently. The inflated posted mortgage rates you see at most other banks—rates that nobody pays, anyway—are gone at ATB.

That means you can say goodbye to negotiating and guessing what the "actual" rates are, and say hello to a clear, straightforward, and straight-up process to get you into your new home.

Clarity is good, but saving money is even better. And the biggest way No Bull Mortgages can save you money is by lowering your prepayment penalty if you break your mortgage.

If you break and prepay your mortgage mid-term—let's say you upsize or downsize your home—you're often charged a prepayment penalty. For a fixed-rate mortgage, the prepayment penalty is the greater of three months interest rate or the Interest Rate Differential (IRD). These calculations typically use posted mortgage rates and factor in the discount you negotiated on your mortgage. With ATB's No Bull Mortgages, your prepayment fees are based simply on your contract rate—which is the actual market rate.

How are prepayment penalties calculated?
Calculate your prepayment penalty

What does that all mean in English?

It means that you may pay an inflated, unfair penalty if you need to break your mortgage early with other banks.

And as you can see in the example below, the savings can be significant.

Example:

On July 31, 2011, you buy your first home and sign a five-year, fixed-term mortgage. As your family grows, you start looking at a bigger home, and after a few months of searching, you find the perfect one—on August 1, 2013. Because of this unexpected upgrade, you now have to break your mortgage three years before it matures (you have $320,000 left on your mortgage).

When you signed your current mortgage, you weren't concerned about prepayment penalties, but as you can see below, prepayment penalties can have a significant financial impact on your bottom line.

Mortgage date July 31, 2011
Date you break your mortgage August 1, 2013
How much you have left owing on your mortgage $320,000
Your original mortgage term 5 years
How many years left you have on your term 3 years
  Mortgage breakage fee by most other banks Mortgage breakage fee with ATB's No Bull Mortgages Rates
5-year posted rate when you got your mortgage 5.39% Not applicable for ATB's IRD calculation
Your actual contract rate 4.00% 4.00%
Discount 1.39% N/A
3-year posted rate on August 1, 2013 (the day you break your mortgage) 3.75% 2.99%
IRD formula (Contract rate - [Posted rate for remaining term - Discount from original mortgage]) x Principal outstanding x Remaining term (Contract rate - Posted rate for remaining term) x Principal outstanding x Remaining term
IRD payment $15,744 $9,696
Difference in fees $6,048

A mortgage is a big commitment, but sometimes, no matter how much you plan, you just can't avoid breaking it. Avoid inflated prepayment penalties and feel confident with your decision with Clear-Cut Mortgage Rates.

Other articles you may be interested in:

How are prepayment penalties calculated?
How to avoid (or lower) mortgage prepayment penalties
How to pay down your mortgage faster
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