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Selling Your Home Early? Here's What You Need To Know


The thought of selling one's home often comes to mind due to various reasons: unaffordability, buying a new/dream house, and so on. If you know your way around mortgages, then you may also be aware that breaking a mortgage can cost you an arm and a leg, and it certainly doesn't come cheap. This is mainly due to the penalties for breaking fixed-rate mortgages which can be as high as $99,000. These penalties are levied in the interest of lenders who face a loss when a mortgage is broken.


There are a couple of options to sell a house before the end of a mortgage term. One of them is the lender himself offering a Blend-and-Extend option wherein the interest rate of the old mortgage is blended with the terms of the new mortgage to make an entirely new mortgage. Additionally, there is no prepayment penalty, but you may have to pay administrative fees. Be warned that not all lenders give this option. So, a wise choice would be to weigh the benefits against the prepayment penalty.

So, it may seem great to be able to break the mortgage, here are some pros and cons to consider before taking that big step.


Interest rate: If you can score a low-interest rate it will help pay off the mortgage at a faster rate if you keep the mortgage payment amount the same as the current one. The flip side is that in the broader scheme of things you may end up paying a big sum as a prepayment penalty. If the interest saved by getting a low interest mortgage is more than the sum you will pay as a prepayment penalty, then you could consider the option.


Qualification and savings: A low-interest rate on new mortgage terms saves you a lot of money. But the volatility of the market makes it difficult for people to qualify for a new mortgage. If you are selling your house to take up a rented new one, then you need to do the prepayment penalties versus selling home early test and see which one outweighs the other.


Besides these, it always does well to read between the lines of your ongoing mortgage contract. If needed talk to a broker or advisor for help to be able to sell the house with the least prepayment penalty or an alternate route. If possible, you must consider waiting till your mortgage term expires. This is particularly easy if the expiry date of your mortgage is nearing.


If you have any questions or concerns about breaking the mortgage before the term ends, do write to us at LendX Financial in Brampton, Greater Toronto Area.

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