Real Estate

Pay off mortgage balance - best solution with least penalty

  • Last Updated:
  • Aug 29th, 2018 2:26 pm
[OP]
Member
Jan 27, 2013
429 posts
33 upvotes
Toronto

Pay off mortgage balance - best solution with least penalty

Here's my current mortgage situation:

Lender: CIBC
Mortgage Loan Balance: $606,000
Payment frequency: Bi-weekly
Interest rate: 2.59% (5-year fixed)
Maturity date: May 28, 2020

Questions:

1) If I am able to pay off my mortgage balance in full today, what would be the penalty cost if I were to do this?

2) If I wait until the maturity date, can I pay off the mortgage balance in full without any penalties?

Basically, I'm trying to find out the best strategy to pay out my mortgage balance.

Any help or advice would be greatly appreciated.
32 replies
Newbie
Aug 20, 2016
1 posts
Depends on the mortgage conditions. Open, closed, fixed, variable.

Generally for fixed, it's three months interest penalty.
Member
Feb 9, 2018
265 posts
180 upvotes
kingtosh82 wrote:
Aug 23rd, 2018 7:24 pm
Here's my current mortgage situation:

Lender: CIBC
Mortgage Loan Balance: $606,000
Payment frequency: Bi-weekly
Interest rate: 2.59% (5-year fixed)
Maturity date: May 28, 2020

Questions:

1) If I am able to pay off my mortgage balance in full today, what would be the penalty cost if I were to do this?

2) If I wait until the maturity date, can I pay off the mortgage balance in full without any penalties?

Basically, I'm trying to find out the best strategy to pay out my mortgage balance.

Any help or advice would be greatly appreciated.
Assuming this is your first 5-yr fixed term for this mortgage, total interest payments you will pay for year 4th and 5th will be $13982 and $13489 plus the interest cost for remaining of 2018. A total of ~32K. This assumes you wait till maturity and dont make any pre-payments. If you decide to pay the whole amount today, IRD calculation will apply and depending on how big a discount you received from the CIBC's 2015 5-yr posted rate, amount comes out to be between 13k to 19k. Use the CIBC link below to calculate yourself. If you have the money, I would prefer paying it off now since clearly 19K < 32K. This doesnt even take into account your pre-payment privileges for a year. Normally you can pay off upto 20% of principal in a year so you can use that privilege and then cancel it. Your IRD penalty should be even lower. On a side note, Did you win a lottery?

https://www.cibc.com/ca/mortgages/calcu ... lator.html
Member
Feb 9, 2018
265 posts
180 upvotes
And yes, you can pay off the balance in full at maturity without penalty but you would have paid an additional 32k in interest by then, if you dont use your prepayment privileges. Also, its better to call CIBC to get the exact IRD calculation figure.
[OP]
Member
Jan 27, 2013
429 posts
33 upvotes
Toronto
Thanks for your help!!!

And no, didn't win a lottery. But may have an inheritance coming my way.
Deal Addict
Apr 18, 2013
2630 posts
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Canada
kingtosh82 wrote:
Aug 23rd, 2018 8:46 pm
Thanks for your help!!!

And no, didn't win a lottery. But may have an inheritance coming my way.
Congratulations!
Deal Addict
User avatar
Oct 2, 2006
3577 posts
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I don't know the details of your mortgage, but in my case when I had a mortgage, every year the bank allowed me to pay up to a certain additional amount without incurring any penalties. So every year, I'd pay that maximum additional amount up until the maturity date, which is when I paid it off. And that additional payment goes directly to the principal amount, and not on the interest.

The timing was a bit perfect for me as I didn't want to move to London with no job prospects (I was on a working holiday) and have debts to pay in Canada.
Last edited by heymikey on Aug 23rd, 2018 9:39 pm, edited 1 time in total.
Deal Expert
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Jan 27, 2004
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T.O. Lotto Captain
You can make as many lump sum payments and increase payments as you can (without incurring fees).
So double check your mtg rules. Example... many hve a “20+20” option. Where you can make a lump sum payment of 20% of your original borrowed balance, plus increase your payments by 20%.
Thats just an example. Check your lender for rules specific to your mtg.
Then at maturity, request it to be an open mtg and just pay it all off.
Sr. Member
Oct 8, 2003
619 posts
249 upvotes
Toronto
Why would you pay off a loan at 2.59%? That’s basically free money. Take your money to pay it off and put it into something that earns more.
Last edited by bmwguy on Aug 24th, 2018 11:18 am, edited 1 time in total.
Realtor at Blue Elephant Realty focused on the Toronto Condo Market and Real Estate Investing
Deal Addict
Nov 13, 2013
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bmwguy wrote:
Aug 23rd, 2018 9:54 pm
Why would you pay off a loan at 2.59%? That’s socially free money. Take your money to pay it off and put it into something that earns more.
It is not free it is 2.59% and tax free. For me that is equivalent to 5% after tax. I am doing much better than that on my investments but there is risk of a downtown so the risk adjusted return is probably below 5%. GICs are paying not much better than 3 for example.
[OP]
Member
Jan 27, 2013
429 posts
33 upvotes
Toronto
It may be 2.59% now, but at maturity when I have to renegotiate my mortgage, the way interest rates are going, it could be much higher.
Sr. Member
Jun 7, 2017
745 posts
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BC
kevinross121 wrote:
Aug 23rd, 2018 7:42 pm
Depends on the mortgage conditions. Open, closed, fixed, variable.

Generally for fixed, it's three months interest penalty.
3 months interest is for variable. For fixed, it’s the greater of that and the IRD, which in a declining rate environment can be HUGE.
That’s one reason why I always recommend variable.
Last edited by Furcorn on Aug 24th, 2018 12:40 pm, edited 1 time in total.
Sr. Member
Oct 8, 2003
619 posts
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Toronto
fogetmylogin wrote:
Aug 24th, 2018 5:55 am
It is not free it is 2.59% and tax free. For me that is equivalent to 5% after tax. I am doing much better than that on my investments but there is risk of a downtown so the risk adjusted return is probably below 5%. GICs are paying not much better than 3 for example.
Sorry my post autocorrected and should have said “basically free”. There are other types of investments out there where you should be able to easily make 5% on that money but that’s just what I’d do.
Realtor at Blue Elephant Realty focused on the Toronto Condo Market and Real Estate Investing
Deal Guru
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Nov 28, 2016
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Doesnt matter, every…
Why dont you max out repayment in every way, depending on the mortgage. 1.5 years to go on it. Then when its due pay the rest. Or does it work that way, Im not sure, never been in that situation

Would the interest over the next 18 months be more than the repayment fee right now, if you maxed out every repayment option available

Thats the math you need to do.
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Doesnt matter, every…
kingtosh82 wrote:
Aug 24th, 2018 9:39 am
It may be 2.59% now, but at maturity when I have to renegotiate my mortgage, the way interest rates are going, it could be much higher.
But if you have the money to pay it off now, wont you have the money to pay it when its dues, what would you have to renegotiate?

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