Quite recently I blogged about IRD, that mysterious word in your mortgage commitment, I explained the difference between the 3 month interest penalty and the different types of IRD.
But what if there was a way to reduce that penalty? For those of you that don’t know what IRD (Interest Rate Differential) is; it is the difference between what the lender gave to you for a rate when you took out or renewed your mortgage to what they would get if they relend the money today.
So back to the original question, what if there was a way to reduce that penalty? There is.
Each mortgage has prepayment privileges, prepayment privileges allow you to pay down a portion of your original mortgage amount without penalty each year. The prepayment can be anywhere from 10 to 20%.
You have found your dream home, but you still own your starter home. You have called your local bank and they have advised your payout penalty is $16,000, but what if we could reduce that down to $13,000 by using your prepayment privileges.
Your next thought is where to do I come up with that kind of money? What if you could get it, would you consider it?
Below is an IRD Calculator, it is fillable and can give you an idea of what your payout penalty will be. Remember your bank always charges the largest amount for your penalty.
To review how you can reduce your penalty, call your local mortgage broker.
Elise Hildebrandt, AMP is a Mortgage Associate, Broker Lic# 316103 with The Mortgage Centre, Brokerage Lic #315847 in Saskatoon SK, Canada. She has been part of the financial industry for 16 years, the last 13 in the mortgage industry. You can connect with her via elisehildebrandt.ca.