Here is an example to illustrate the cost of paying off a mortgage before the maturity date. Helen and Henry have a mortgage for a 5 year term. The interest rate is 9 per cent, taking into account the 0.5% reduction in the interest rate that they received at the beginning of the current term. They still owe $100,000. They have inherited $100,000 and are thinking of using it to pay off their mortgage. They have used all the prepayment options available to them this year. There are 36 months left before the mortgage maturity date. The current interest rate for a mortgage with a similar term is 6 per cent.

1. Estimate the Cost of Three Months' of Interest
Step 1
Amount they want to pay	$100,000 (A)
Mortgage interest rate written as a decimal	.09 (B)
A x B = C ($100,000[A] x .09[B] = $9,000 [C])	$9,000(C)
Step 2
C divided by 4 = D, ($9,000[C] divided by 4 = $2,250[D]) (estimated three months' interest costs)	$2,250 (D)

2. Estimate the Interest Rate Differential Amount
Step 1
mortgage interest rate (expressed as a percentage)	9% (A)
posted annual interest rate of 6% for a new mortgage with term that is closest to the remaining term in their existing mortgage less the discount of 0.5% they received on their existing mortgage	5.5% (B)
A - B = C, the difference between their existing interest rate and the current rate, written as a decimal	0.035 (C)
amount they want to pay off	$100,000 (D)
Step 2
number of months left until the mortgage maturity date	36 months (E)
(C x D x E) divided by 12 = F (.035(C) x 100,000 (D) x 36 (E)) divided by 12 = $10,500	$10,500 (F)

In this example, Helen and Henry estimate that it would cost them $10,500 to pay off their mortgage before the maturity date, since this amount is higher than the three months' interest costs.

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.