One of the easiest ways to ensure you’re getting the best mortgage rate around is to renegotiate your financing terms when interest rates are low. Which is great… except for one small problem: penalties. Banks are notorious for slapping borrowers with hefty penalties, especially those who are looking to wiggle their way out of a long-term fixed rate deal.
It used to be that borrowers could anticipate a penalty charge that amounted to approximately three months’ worth of interest at their current rate. Today, most lenders charge a penalty that is based on three factors:
- The current and past interest rates
- The outstanding balance
- The number of months left in the mortgage term
This is knowns as the Mortgage Rate Differential (IRD). Unfortunately for homeowners in search of a best rate mortgage, the IRD is now significantly higher than in the past thanks to rock-bottom interest rates. Continue reading