Right, Canada. The U.S. eliminated prepayment penalties. In Canada, your penalty should be the higher of:
- An amount equal to 3 months’ interest on what you still owe
- The interest rate differential (IRD)
So your break-even point is an interest rate decrease of 0.25% on a $300,000 loan. Those penalties really aren't much compared to a significant change in interest rate. Don't believe the "locked in" myth! Do the math and talk to a financial advisor once interest rates have moved!
Fix term is only 5 years (5%), I can't lock in for the whole amortization period. My break even point would be at 4%, when I include the interest savings over 5 years and reimbursing the cashback. Current rates are around 4.5 for five year fixed. Would still need to come up with 17k cash immediately
Comments
- An amount equal to 3 months’ interest on what you still owe
- The interest rate differential (IRD)