Selling your home before your mortgage term ends can have financial implications you need to consider. In Canada, most mortgages come with a fixed term, and breaking it early may result in penalties.
Mortgage Penalties
When you sell before your term ends, your lender may charge a prepayment penalty. This is usually the higher of three months’ interest or the interest rate differential (IRD). The IRD is based on your remaining balance, current interest rate, and how long is left in your term. Check your mortgage agreement or ask your lender for specifics.
Porting Your Mortgage
Some lenders allow you to port your mortgage. This means you can transfer your existing loan to your new home. It may reduce or eliminate penalties, but the process depends on lender approval and timing.
Costs to Consider
When selling before your mortgage term ends, be prepared for a few costs. Your lender may charge a prepayment penalty, either three months’ interest or the interest rate differential (IRD). You’ll also have legal fees for closing, realtor commissions (typically 4-5% of the sale price), and possible discharge fees to close your mortgage. Moving expenses and any repairs or renovations before selling should also be factored in. These costs can add up, so make sure to budget accordingly.
CMHC Rules and Advice
If you have a high-ratio mortgage insured by CMHC, selling early may involve additional steps. Ensure your new home meets CMHC’s insurance guidelines if you plan to transfer the mortgage. CMHC also offers resources to help you calculate penalties and understand your options.
Timing the Sale
Consider market conditions when selling. A strong market may help offset costs with a higher sale price. The Bank of Canada provides updates on interest rates and housing trends, which can guide your timing.
The Importance of Using a REALTOR®
Using a REALTOR® when selling your home can make the process much easier and more efficient. They can help you set the right price, market your home effectively, and negotiate on your behalf. They also handle the paperwork, ensuring everything is in order and compliant with local regulations. This can save you time and reduce stress, especially when dealing with complex mortgage details or legal requirements. Having a professional on your side increases your chances of a successful sale and a smoother transaction overall.
Selling before your mortgage term ends isn’t uncommon, but understanding the costs and options is essential. Talk to your lender and review your agreement before listing your home.
