Monoline Lenders

What is a

Mortgage Penalty?

What do I need to know about breaking my mortgage?

  • WHY ARE MORTGAGES BROKEN?

    To break a mortgage, is to change or terminate your mortgage contract before the end of your term. Many people have no intention of breaking their mortgage, but in reality more than half of Canadians do.


    The reasons for this vary immensely and may include:

    • to obtain a lower interest rate
    • to move (upsizing/downsizing)
    • to access equity (renovations, big purchases, etc.)
    • to consolidate debts
    • to remedy unexpected life events

    *Not all mortgages can be broken without selling your home. Check with your lender!


    By building a strategy around this, we can potentially save you tens of thousands of dollars.

  • WHAT IS A 'PENALTY'?

    A penalty is incurred when a mortgage is broken before the end of your term. This is how the lender makes back some of the lost interest from the remainder of your term. The calculation for penalties is dependent on the original lender, mortgage product and rate type.


    For variable rate mortgages, this penalty is calculated as:

    • the sum of 3 months interest.

    For fixed rate mortgages, this penalty is calculated as the greater of either

    • the sum of 3 months interest; or
    • an Interest Rate Differential (IRD) penalty

    *There may be other fees associated with breaking your mortgage. Check with your lender!

WHAT IS A MONOLINE LENDER?


Monoline lenders (e.g. RMG, Strive, MCAP, and First National) specialize in only one type of lending: mortgages. In lieu of “brick-and-mortar” buildings, they are able to offer competitive mortgage interest rates, favourable penalty calculations, vast product options, and robust electronic infrastructure for their clients. 


Instead of employing internal ‘mortgage specialists’ to bring in clientele, they rely on external mortgage brokers to place mortgages with them. Mortgage brokers then act as the primary point of contact and can assist with concerns throughout your mortgage term, answering questions and offering solutions faster.

ARE MONOLINE LENDERS SECURE?


Monoline lenders are heavily regulated and comply with both provincial and federal financing standards. Their mortgages are funded and backed by billions of dollars from institutions spread across North America, making them exceptionally secure. Additionally, monoline lenders rely on brokers (who carry strict licensing and compliance obligations) the quality of the mortgages they fund is consistently very high, adding to the strength of security.

FEATURES OF A MONOLINE LENDER


  • User-Friendly Client Portal - The client portal can be used to make any additional payments, change your payment frequency, check your balance, or make any applicable changes. 


  • Allows Broker Assistance - Removing the need for in-branch appointments or meetings - this is especially helpful during mortgage maturity. Most monoline lenders allow us to liaise with them to obtain renewal offers in order to compare those offers with other current market offerings. This takes the stress and uncertainty out of the equation for you, the client.


  • Competitive Pre-Payment Options - Not only do monoline lenders offer some of the best pre-payment options on the mortgage market, they also make it easy to take advantage of them with their client portal. There’s no need to go to a branch or call a servicing department to make any changes.


  • Favourable Penalty Calculations - This is one of the most important and often overlooked parts of a mortgage. More than half of Canadians break their mortgage for some reason or another, and not all lenders calculate penalties the same way - especially Interest Rate Differential (IRD) penalties.

IRD PENALTY CALCULATIONS


Lenders like the Big 5 Banks offer discounts on their posted rates, unlike monoline lenders, which use lower contract rates upfront. “Discounts” can come back to haunt you, as they are used in the IRD penalty calculation, and the difference can cost clients thousands in interest. Find more information on our Mortgage Penalties info sheet.


In this example, the original contract rate is 4.59%. At the time of breaking the mortgage, the current balance is $400,000 with 3 years remaining. With a monoline lender, this would result in $26,400 in savings compared to a Big Bank.

Image of a table that clearly illustrates the calculations when paying an IRD penalty at a Big 5 Bank compared to another market lender. The result indicating that market lenders have drastically low IRD Penalties.

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