You can repay 15-20% of the original principal amount of your mortgage loan every year.
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Equitable Bank applies prepayment charges to closed-term mortgages when borrowers pay off their mortgage early or make lump sum payments exceeding their prepayment privileges. Understanding these charges can help borrowers make informed decisions about managing their mortgage.
Understanding Prepayment Charges
Prepayment charges are fees applied when a borrower repays their mortgage in full or makes a lump sum payment that exceeds the allowed prepayment privileges. These charges are designed to compensate the bank for the interest income lost due to early repayment.
How Prepayment Charges Are Calculated
The prepayment charge is typically calculated as the greater of:
- Three months' interest on the amount being prepaid, or
- The Interest Rate Differential (IRD), which is the difference between your mortgage rate and the current market rate for a similar term.
For example, if you have a fixed-rate mortgage with a 3.00% interest rate and the current market rate for a similar term is 2.50%, the IRD would be 0.50%. If your mortgage balance is $200,000, the IRD would amount to $1,000. In this case, the prepayment charge would be the greater of three months' interest or the IRD.
Prepayment Privileges
Equitable Bank offers prepayment privileges that allow borrowers to make additional payments without incurring a prepayment charge. These privileges typically include:
- Making lump sum payments up to a certain percentage of the original principal balance annually, and
- Increasing regular payments by a specified amount.
These privileges vary depending on the specific terms of your mortgage agreement. It's important to review your mortgage documents or contact a Mortgage Specialist to understand the exact privileges applicable to your loan.
Estimating Prepayment Charges
To help borrowers estimate potential prepayment charges, Equitable Bank provides a Mortgage Prepayment Charge Calculator. This tool allows you to input details such as your mortgage balance, interest rate, and the amount you wish to prepay to estimate the applicable charge. Please note that the calculator provides an estimate, and the actual charge may differ based on your specific mortgage terms.