With interest rates at historical lows, you may be thinking about renegotiating your mortgage rate to take advantage of lower rates. However, if you break your closed term mortgage, you will be assessed a prepayment charge.
The purpose of a prepayment charge is to compensate the lender for the economic costs it incurs when a prepayment amount exceeds the prepayment privileges permitted under the mortgage. These costs include prepayment transaction costs, plus the full term amount of interest that was designed, in part, to acquire the mortgage which the lender will not recover when a mortgage is prepaid.
The prepayment charge is 3 months’ interest on the amount prepaid using the
The prepayment charge for a fixed-rate mortgage is the greater of
The interest rate differential is the difference between the interest rate and our posted rate on the prepayment date for a mortgage with a term similar to the time remaining in the term and having the same prepayment options as the mortgage less your rate reduction.
In completing this calculation one of the components used is a financial concept called “present value”. This concept recognizes that interest income to be received in the future is less valuable than the same amount of money received today. The interest rate differential calculation also takes into account the fact the mortgage balance for the remaining term declines on each payment date. The use of these financial concepts in the calculation reduces the amount calculated using the interest rate differential.
A prepayment charge can change over time due to several factors.
Please contact us for the exact cost of prepaying your mortgage. We can give you the precise costs that apply to prepayments with respect to your mortgage.
RBC offers a number of prepayment options available that can help you pay down your mortgage faster and save on interest costs. If you use all of our mortgage options to their fullest, you could prepay as much as 20% or more of your original mortgage balance each year.
If you're within 120 days of the maturity date of your RBC mortgage, our Early Renewal option will allow you to lock in at current rates.
We can help you tailor a mortgage solution based on your financial needs. If you have more questions regarding renegotiating your rate, contact us 24 hours a day, 7 days a week at 1-800-769-2570 or visit your local branch.
Calculate your prepayment charge and find out what interest rate you would need to get to "break even".