# Mortgage Penalty Calculator 2023

If you are not happy with interest rate you currently have and like to switch to a better mortgage plan, you might need to pay some penalty to break your current contract. Here you can calculate the amount of the penalty.

## What is Mortgage Penalty?

When you already have a mortgage it means that you are in contract with a lending company so if you want to break the contract you need to pay the penalty.
The amount of this penalty is depends on your contract, and how long of the remains and if you have variable rate or fixed rate.

## Mortgage Penalty, Variable rate

If your mortgage contract is variable rate most of the time the penalty would be 3 month of the interest.
If you are early in the contract that means the amount of the principal you have owe still a lot so calculating the interest of that principal might become a big number.
The interest rate the lender will use to calculate the penalty is based on their real interest rate announced at the time you signed the contract, if you got discount on interest rate that discount rate won't get applied to this calculation.

## Mortgage Penalty, Fixed rate

If your mortgage contract is fixed rate the lender will calculate the penalty with 2 different formula and which ever is higher will count as the penalty.
The first way to calculate the penalty based on 3 month of interest.
The second way to calculate the penalty is that the lender will calculate the rate differential (the rate the lender had at the time you signed the contract without any discount and the official current rate the lender offers today) and use this number to calculate the interest you needed to pay for the rest of the contract.
For example let's say you got \$500,000 mortgage with 3% interest rate without any discount, now 2 years after you decide to break this contract for a reason, the current interest rate the same lender is offering now if 2.5%, imagine your current balance of your mortgage is \$460,000. the interest rate differential is (3%-2.5%) 0.5% and you have 3 years left on your contract with a simple calculation you mortgage differential penalty would be \$6,900.
Lets calculate your 3 month penalty based on the same scenario, your current interest rate is 3% on \$460,000 so you pay \$1,150 worth of interest per month, multiply that by 3 is: \$3,450 would be your 3 moth interest penalty so the lender will chose the first amount which \$6,900
Note: These numbers are all for understanding the concept of the penalty calculations so please do not rely on the numbers
Serving Mortgage / Loan Industry in Greater Toronto Area (GTA) - Canada