Real Estate

Pay off mortgage with no penalty before renewal

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  • Feb 13th, 2020 2:45 pm
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Jul 17, 2008
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Pay off mortgage with no penalty before renewal

How many months before renewal one can pay off the entire mortgage balance with no penalty?

Apparently you have 120 days before renewal to secure a new mortgage term/rate, but how about just paying everything off?
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Feb 2, 2014
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Messerschmitt wrote: How many months before renewal one can pay off the entire mortgage balance with no penalty?

Apparently you have 120 days before renewal to secure a new mortgage term/rate, but how about just paying everything off?
You can't.

Also, you can only early renew with your existing lender 120 days before the renewal date (or whatever date the lender reaches out to you to retain the business)...you cannot switch lenders until the actual renewal date.

You can get an approval 120 days before the renewal date, but the closing date is still the renewal date.

So basically you cannot pay out your existing lender until the renewal date if you want to avoid penalty.
Kevin Somnauth, CFA
Principal Broker - First Toronto Mortgage - MA (Ontario #13176, BC #X301007)
Real Estate Salesperson - Century 21 Innovative
[OP]
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CdnRealEstateGuy wrote: You can't.

Also, you can only early renew with your existing lender 120 days before the renewal date (or whatever date the lender reaches out to you to retain the business)...you cannot switch lenders until the actual renewal date.

You can get an approval 120 days before the renewal date, but the closing date is still the renewal date.

So basically you cannot pay out your existing lender until the renewal date if you want to avoid penalty.
So I have to drop a cheque for the entire amount the day of the mortgage expires?
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Messerschmitt wrote: So I have to drop a cheque for the entire amount the day of the mortgage expires?
Contact the lender to see what payment options they have (ie post dated chq).
Kevin Somnauth, CFA
Principal Broker - First Toronto Mortgage - MA (Ontario #13176, BC #X301007)
Real Estate Salesperson - Century 21 Innovative
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Jun 7, 2017
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That's a good reason to get an open mortgage rather than fixed. Prepay as much as you want whenever you want.
We always got this type after our first house/mortgage so we could pay the balance down as cash rolled in.
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Feb 16, 2018
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Furcorn wrote: That's a good reason to get an open mortgage rather than fixed. Prepay as much as you want whenever you want.
We always got this type after our first house/mortgage so we could pay the balance down as cash rolled in.
Don't open mortgages usually carry a significantly higher % rate to allow you to do that? Most closed mortgages allow prepayments with no penalty of 15-20% every year and 99% of people wouldn't be able to do more than that anyways so for the vast majority of people open mortgages wouldn't save them more money but I am not entirely sure.
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HghSsociety wrote: Don't open mortgages usually carry a significantly higher % rate to allow you to do that? Most closed mortgages allow prepayments with no penalty of 15-20% every year and 99% of people wouldn't be able to do more than that anyways so for the vast majority of people open mortgages wouldn't save them more money but I am not entirely sure.
Yes, I would advise against getting an open mortgage (which carries a much higher rate) unless you will be breaking/closing the mortgage in the very, very near future.

For example, there are people who are closing on the sale of the property right after the mortgage is set to renew...an open mortgage is fine in this case.
Kevin Somnauth, CFA
Principal Broker - First Toronto Mortgage - MA (Ontario #13176, BC #X301007)
Real Estate Salesperson - Century 21 Innovative
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HghSsociety wrote: Don't open mortgages usually carry a significantly higher % rate to allow you to do that? Most closed mortgages allow prepayments with no penalty of 15-20% every year and 99% of people wouldn't be able to do more than that anyways so for the vast majority of people open mortgages wouldn't save them more money but I am not entirely sure.
I don't think there is a one-size-fits-all answer here - you've got to do the math and it's very specific to each situation. The lowest open mortgage is a HELOC and you can get one from Motusbank at 3.75% (of course you can only borrow 65% of the value of the house on a HELOC). Lowest comparable 5-year fixed rate with a fair penalty is 2.49% (give or take). Comparing those two on a $500k mortgage means you'd be ahead with a HELOC if you prepaid the whole mortgage within 9 months or so. It also depends on your view of interest rates - if we're in a falling rate environment the HELOC gets better and the opposite in a rising rate environment. Hell, if you're like 3/4 borrowers and have your closed mortgage with a big-bank, the HELOC option is better if you plan on breaking your mortgage within the first 3 years. Open mortgages aren't a bad thing at all (I've actually only got a HELOC and no closed mortgage because I value the flexibility). Just like everything though, it really depends!
Nikola Alaica, CPA, CA | Tax, Accounting, Mortgages

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