Prepayment Charges

Want to payout your mortgage? Let’s talk first.

If you’re thinking of paying out your mortgage early, making a lump sum payment or increasing your regular payment amount, speak to one of our customer experience specialists first. They can advise you if prepayment charges(1) would apply. They can also help you calculate what the payout charges will be and can let you know if there are any options available to you that can help you to avoid these charges. Alternatively, refer to our Prepayment Charge calculator to obtain an estimate of the charge.

Note: Our open mortgages allow you to payout at any time without charge.

What is a prepayment charge?

A prepayment charge is a fee you’ll need to pay if you prepay a closed mortgage ahead of schedule. This can be a case of paying off your entire mortgage early or simply paying more than your mortgage agreement allows you to during the term of your mortgage.

 

How are prepayment charges calculated?

The Disclosure Statement will identify which Prepayment Charge Method applies to your mortgage and will also outline any Prepayment restrictions.

 

The Interest Rate Differential (IRD) or 3 months Interest Prepayment Charge Method

If you want to pay more than your available Prepayment Privilege allows, the excess amount will be subject to a Prepayment Charge calculated as follows:

(a) If the Term of the mortgage is for 5 years or less, you may prepay more than the Prepayment Privilege allows at any time during the Term upon payment of a Prepayment Charge that is the greater of:

  • (i) The Interest Rate Differential (“IRD”)2 calculated on the amount being prepaid; and
  • (ii) 3 months interest at the Annual Interest Rate of the mortgage calculated on the amount being prepaid.

(b)   If the Term of the mortgage is more than 5 years, you may:

  • (i) At any time during the first 5 years, prepay more than the Prepayment Privilege allows upon payment of the Prepayment Charge provided for in (a) above; or
  • (ii) At any time after the 5th year of the mortgage, prepay more than the Prepayment Privilege allows upon payment of a Prepayment Charge of 3 months interest at the Annual Interest Rate of the mortgage calculated on the amount being prepaid.

3-2-1 Prepayment Charge Method**

For payments made at any time in the 1st year of your Term where the Prepayment date is:

Percentage

Up to and including the 1st Anniversary Date*

3%

For payments made at any time in the 2nd year of your Term where the Prepayment date is:

Percentage

After the 1st Anniversary Date*, up to and including the 2nd Anniversary Date*

2%

For payments made at any time in the 3rd year of your Term where the Prepayment date is:

Percentage

After the 2nd Anniversary Date*

1%

* Payments made on the Anniversary Date will be calculated by reducing the amount being prepaid by the allowable Prepayment Privilege amount.

** Each year, only on the Anniversary Date of your mortgage, you may make a lump sum payment of up to 20% of the principal amount owing on the mortgage at the beginning of your current term without paying a penalty or charge. Prepayments requested at any other time are not allowed. The Prepayment cannot be more than 20% of the original principal amount without paying a Prepayment Charge and must be at least $500. Even though you may have prepaid less than 20% of the principal amount on previous Anniversary Dates, the unused prepayment privilege amount does not carry forward.

If you have any questions about how prepayment charges are calculated or if you’d like help calculating a prepayment charge, please speak with one of our customer experience specialists who’ll be happy to assist you.

When might a prepayment charge apply?

  • Making a lump sum prepayment greater than what your mortgage agreement allows.
  • Selling your home and not porting your mortgage to a new home. Instead, you’re using the sale proceeds to pay off your mortgage.
  • Refinancing your home to borrow more money against it.
  • Transferring your mortgage to another lender.

 

How can I avoid prepayment charges?

If you’re applying for a new mortgage and suspect you might need to pay it out before the term ends, consider choosing an open mortgage instead of a closed mortgage. With an open mortgage, you can pay any amount at any time (even the entire principal) without incurring any prepayment charges.

Are you buying a new home? You may be able to “port” your mortgage. You may be able to transfer your existing mortgage rate and remaining term from your existing home to your new home without having to pay it out and get a new one.

If you’re going to make a lump sum payment, make sure that the amount is within your prepayment privilege.
• Every year, you can pay off up to 20% of your original or renewed principal amount in a lump sum. (4) (5)

If you’d like to refinance your home to borrow more money against it, consider adding a second mortgage. You’ll be able to access money from your home without having to pay out your existing mortgage.

If you’re applying for a new mortgage and suspect you might need to pay it out before the term ends, consider choosing an open mortgage instead of a closed mortgage. With an open mortgage, you can pay any amount at any time (even the entire principal) without incurring any prepayment charges.

Are you buying a new home? You may be able to “port” your mortgage. You may be able to transfer your existing mortgage’s rate and remaining term from your existing home to your new home without having to pay it out and get a new one.

If you’re going to increase your regular payment amount or make a lump sum payment, make sure that the amount is within your prepayment privilege.

  • Every year, you can pay off up to 20% of your original or renewed principal amount in a lump sum. (3) (4)
  • You can increase your regular payment amount by up to 20% at any time or times during your term. The total of these increases during the term of your mortgage cannot be more than 20% of the regular payment amount.

If you’d like to refinance your home to borrow more money against it, consider adding a second mortgage. You may qualify to access money from your home without having to pay out your existing mortgage.

Thinking of switching your mortgage to a new lender? You may be able to negotiate with the new lender to cover your prepayment charge as a condition of switching your mortgage to them.

 

If you have any questions about prepayment charges, speak with one of our customer experience specialists.

Learn more about mortgage prepayments at the Financial Consumer Agency of Canada (FCAC) website.

 

 

(1) Always refer to your most recent Disclosure Statement and/or Renewal Agreement for complete information regarding the Prepayment Charges applicable to your mortgage.
(2) The IRD amount is the difference in the interest rate between the annual interest rate of the mortgage and the Government of Canada bond yield rate reported at 12 p.m. (eastern time) on the business day preceding the date you requested us to prepare your mortgage payout statement, plus 0.75%*, multiplied by the amount being prepaid, less the unused portion of the Prepayment Privilege, and multiplied by the time that is remaining on the term. The bond yield rate will be posted on our website at bridgewaterbank.ca or may be obtained by calling Bridgewater Bank toll-free at 1-866-243-4301. Note: This % may be different depending on the date you obtained your mortgage. Always refer to your most recent Disclosure Statement for complete information regarding the Prepayment Charges applicable to your mortgage.
(3) Refer to your most recent Disclosure Statement and/or Renewal Agreement for complete information regarding Prepayment Privileges available.
(4) Minimum payment of $500. You cannot carry forward any unused portion of the Prepayment Privilege to a future year. Some mortgage products restrict the day in which this payment can be made.
(5) For purposes of the Prepayment privilege, a year means each 12-month period following the interest adjustment date and each anniversary of the interest adjustment date. Certain mortgage products restrict the day(s) on which this prepayment is available. Refer to your most recent Disclosure Statement or Renewal Agreement for more details. You can also contact us for more information.