How To Avoid Mortgage Penalty
Avoiding a mortgage penalty typically means managing your loan and repayment terms carefully so you don’t trigger fees for breaking, refinancing, or prepaying your mortgage outside the lender’s rules.
✅ How to Avoid a Mortgage Penalty
1. Know Your Mortgage Terms
- Understand what type of mortgage you have:
- Fixed vs. Variable Rate
- Open vs. Closed Term
- Read the fine print on prepayment limits, break fees, and interest rate differential (IRD) calculations.
2. Choose the Right Mortgage at the Start
- If you think you may sell your home or refinance early, consider:
- A shorter-term mortgage
- An open mortgage (usually has higher rates but no penalty for early payoff)
3. Use Prepayment Privileges
- Many mortgages let you pay off 10–20% extra per year without penalty.
- Use these annual lump sum or payment increase options to reduce your balance faster.
4. Time Your Move Carefully
- Try to wait until the end of your term (mortgage maturity) to make big changes like selling or switching lenders.
5. Port Your Mortgage
- If you’re buying a new home, ask about porting your mortgage—transferring it to the new property to avoid penalties.
6. Negotiate Before Breaking
- Talk to your lender before making changes. They may offer penalty-free solutions, especially if you stay with them.
7. Refinance at Renewal Time
- Plan to refinance or renegotiate your mortgage when the term ends, to avoid early-break fees.