Strategy #5: Understanding Prepayment Penalties

Описание: Understanding Interest Rate and Expense Rate
Find out your Cost of Credit - https://mortgageslab.ca/cost-of-credit/

The Fifth strategy focusing on penalty structures and their impact on effective interest rate.
This video introduces the concept of "expense rate" vs the standard interest rate.

Key statistics: 40% of Canadians break their mortgage mid-term, yet 100% of clients initially believe they won't. Common reasons for breaking mortgages:

Divorce/separation
Health issues
Neighbour problems
Job offers/relocations
Many other life changes

Three types of penalties:

3-month interest
Discounted IRD (Interest Rate Differential)
Posted IRD (most expensive)

Real case study breakdown:

$500K mortgage at 4% stated rate
Broken after 2 years (3 years remaining)
Posted IRD penalty: $22,500 (1.5% per year remaining)
Year 1 interest: $20,000
Year 2 interest: $20,000
Total cost of credit: $62,500 for 2 years
Actual expense rate: 6.25% (not the 4% stated)

Portability myths:

Not automatic—requires full application and lender approval
Blend and extend doesn't avoid penalties—just finances them

Recommendation: Choose mortgages with 3-month interest or discounted IRD penalty structures to protect against this risk.

🔗 Calculate your expense rate: https://mortgageslab.ca/cost-of-credit/