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With mortgage rates at all time lows, are you thinking about breaking your current mortgage to get a new lower interest rate?
MortgageThe decision of whether or not to break your mortgage boils down to simple math. You want to make sure that the outstanding balance on your mortgage is less after the break. That also includes factoring in any financial penalty that will come with breaking the mortgage.
Lenders don’t like losing mortgage contracts, which is why they impose financial penalties for breaking both fixed and variable rate mortgages. Most people are aware of the penalty if they break their mortgage but many don’t realize how high the penalty can actually be. You need to determine if the penalty you’ll have to pay when you break the mortgage will benefit you in the long term.
Penalties vary from lender to lender and there are different penalties for different types of mortgages. In general, the penalty for breaking a mortgage is either a payment of three months interest, or something called the interest rate differential (IRD) — a non-standard calculation which seeks to compensate the bank for the money it loses when a homeowner breaks their mortgage.
Mortgage contractThe process of refinancing your mortgage is a lot like taking out your first mortgage. You’re required to fill out an application and endure a credit check. You’ll also be responsible for any fees associated with the title search, inspection, or appraisal.
The good news is that because of the amazing interest rates that banks are offering even with their penalties many homeowners can save thousands of dollars by refinancing.

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