If you prepay your mortgage, you may be charged a prepayment charge. There are different methods for calculating prepayment charges. In some cases, the amount charged is the Interest Rate Differential amount. For Simplii Financial mortgages, the Interest Rate Differential amount is the difference between the following two amounts:
- interest over the remaining term of your mortgage, calculated at your current mortgage interest rate, plus any interest rate discount you received.
- interest over the remaining term of your mortgage, calculated at the current posted Simplii Financial interest rate for the mortgage product that we've determined to be similar to your mortgage.
For a full prepayment, the prepayment charge is calculated on the full amount of the prepayment. For a partial prepayment, the prepayment charge is calculated on the amount of the prepayment that is more than your annual prepayment privilege amount.
Examples of how Prepayment Charges are Calculated
The following illustrates how prepayment charges are calculated. To estimate your prepayment charge, you can use the Simplii Financial Mortgage Prepayment Charge Calculator.
Example of estimating the prepayment charge for a variable rate closed mortgage
Martin has a variable rate mortgage. His original principal amount was $150,000.00. If Martin wanted to pay off the entire principal amount, the prepayment charge would be equal to 3 months' interest on the entire amount he is prepaying, calculated at the CIBC Prime Rate in effect on the date the mortgage payout statement is prepared.
Martin still owes $60,000.00 on his mortgage. If the mortgage payout statement were prepared today, and if the current CIBC Prime Rate is 5.000%, here is how Martin estimates the prepayment charge to pay off the entire mortgage.
Example of estimating the prepayment charge for a fixed rate closed mortgage
Maria has a 5-year fixed rate closed mortgage. When she arranged the mortgage, she received an interest rate discount of 0.500%. Her current annual interest rate on her mortgage is 6.500%.
The principal amount she still owes is $100,000. She has two years (or 24 months) left in the term of this mortgage. However, Maria has just inherited some money and wants to pay off the mortgage.
In Maria's case, the prepayment charge will be the higher of the following two amounts:
- 3 months' interest at her interest rate of 6.500% plus the discount she received of .500%, which is equal to 7.000%; or
- The interest rate differential amount.
The following shows an estimated prepayment charge for prepaying the full amount of Maria's mortgage: