This is because Canadian law does not provide a single standard for how institutions can recover any earnings lost on an early retirement.
Stripe Fee Calculator Mortgage lending terminology often refers to "mortgage cancellation" as "payoff penalty." This is because your lender will decide what it means when you pay off your mortgage before it matures. The "cancellation fees" that were in effect when you executed your contract are listed on your mortgage documents. However, the lender can change the terms and conditions at its discretion.
Two standards
There are two standard formulae that apply. Some lenders may apply both. A lender might assess...
Three-month interest penalty The guidelines of lenders vary from institution to institution. They may add up your current interest charges for the next 3 mortgage payments or base their interest calculations on current market rates.
If you owe $125,000 currently and have been paying 7.75% interest (expressed in a decimal, 7.75% = 0.07755), then the formula P=125,000x(r/12)x3 will apply.
Your penalty is therefore 125,000 x (0.0775/12), x 3, or 125,000x 0.0065, x 3. = $2437.50
Interest rate differential Your lender will charge you the difference between the interest rate it can lend and your current rate. This difference is applied to the time remaining until your mortgage matures.
Apply the formula to the situation in the second example. Assume you have 2 years remaining on your loan (24 month), and that the mortgage interest rate today is 5%.
P=[125,000x (0.0775-0.05) x 24]/ 12. Therefore, your penalty equals [125,000x 2.75%x24]/12.
Or [125,000x0.0275x24] / 12 = $6875.00
The lender has the prerogative
The penalty of $6875.00 will be assessed if the lender invokes its privilege and charges the higher of the cancellation fees. OHMC mortgages use different formulae and standards depending on the date that you signed your mortgage agreement. Mortgages registered before July 1999 have one standard and those registered after July 1999 have another. The floating rate at the time the payment was made may be used by other lenders to determine the current interest rates. A lender might have different standards for different types of mortgages. Some lenders prohibit the early retirement of a mortgage without penalty, except in bona fide cases.
Experts strongly recommend that you consult a real-estate attorney, work with your lender, or an experienced Mortgage Agent to negotiate terms for your early repayment. If you are looking to refinance or move your mortgage, a Mortgage Agent can help you compare the rates and save money. You will not find the same rates from all lenders so make sure you do your research to get the best rate and avoid any penalty fees.