I originally posted a breakdown of how mortgage penalties are calculated by different lenders on January 4, 2011.
This remains relevant today and, since this has been my most popular article to date, it’s worth a repost!
WE TOOK THE MYSTERY OUT OF HOW PENALTIES ARE CALCULATED
We decided this needed a more detailed explanation… but a strange thing happened when we started to answer these questions. We made a startling discovery. We caution you – the results could get your blood boiling if you’ve had to pay a penalty!
We found that the banks have shrunk or reduced the spreads between their Posted and Discounted rates on shorter-term mortgages over the past few years… and this has had a huge impact on Interest Rate Differential (IRD) penalty calculations.
The most popular mortgage product is a 5-year fixed
The most profitable is a 5-year fixed
On average, a mortgage is refinanced or someone moves every 3 years
Mortgage penalties affect more people than you think!
FIRST, YOU NEED TO UNDERSTAND THE HISTORY OF MORTGAGE PENALTIES
To better explain the above statements, I need to explain why mortgage penalties exist at all…