Whilst being able to pay their mortgage early before the tenure is a wish for many, some are able to break their current mortgage with part payment, or are able to pay off their full mortgage before due period. But pre-payment also incurs penalties and charges.
The penalties incurred are usually higher than three months’ interest amount or Interest Rate Differential (IRD).
Interest Rate Differential
This is the difference between the original mortgage interest rate against the current interest rate for remaining term of the balance. IRD is calculated based on the amount you are pre-paying.
Fixed rate mortgages have IRD penalties, typically greater than 3 month’s interest, whilst variable rate mortgage does not entail IRD penalties.
You can our mortgage prepayment penalty calculator to estimate your pre-payment penalty amount.
- Different lenders have different penalties calculation methods. The calculator is based on a rough idea.
- Some lenders round up, while some round down, your remaining months for calculating comparison rate
- Few lenders does not allow early breaking of the mortgage
- Pre-payment penalty is usually lowered in cases where the lender does not use the discount you received in calculation
There are pre-payment privileges offered with most mortgage products, including lump sum contributions, and/or mortgage payment period increase, depending on the lender’s discretion.