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What happens if you break or pay out your mortgage?

At TD, we’re ready to help during every step of your mortgage journey. And that includes any time you may think about "breaking your mortgage," as it's often called. This usually means paying your mortgage in full before its maturity date.

It can be a big decision, so you’ll want to consider every factor, such as whether you'll have to pay a prepayment charge when you "break" your mortgage. A good place to start is to make an appointment with one of our Mortgage Specialists, who can help you navigate your choices.

What to consider before paying out your mortgage

There are a few reasons you might want to pay out or "break" your mortgage — you might be selling your property, switching mortgage lenders, or refinancing to consolidate debt, renovate or pay for a big-ticket item.

One of the first things you should do is understand your mortgage prepayment privileges. These privileges, which are spelled out in the terms of your mortgage agreement, including your latest renewal, may offer you flexible payment options without having to pay a prepayment charge.

What does it cost to pay out your mortgage?

The terms of your mortgage agreement will determine if you have to pay a prepayment charge and if so, how it's calculated:

  1. If you have an open mortgage:
    Whether you have a fixed or variable interest rate, you can pay off your entire open mortgage without paying a prepayment charge.

  2. If you have a variable interest rate and a closed mortgage:
    You will typically be required to pay three months of interest. Check with a Mortgage Specialist for exact details on the cost.

  3. If you have a fixed interest rate and a closed mortgage:
    This one is a bit more complicated. Your prepayment charge will be the greater of:

    1. Three months' worth of interest or
    2. The Interest Rate Differential (IRD) amount.

When thinking about paying out your mortgage before its maturity, it's important to understand the full picture. Speak with a Mortgage Specialist to understand any potential costs, as well as to go over your options.

What are alternatives to breaking your mortgage?

There are some situations where paying out (aka "breaking") your mortgage may not be the best choice, especially if you'll have to pay a prepayment charge. Whether you’re looking to buy a new home, consolidate debt, or renovate your current place, there are alternative ways to help reach your goals. Below are a few:

  • Port your mortgage

    If you’re selling your current home and moving to a new one, you may want to port your mortgage. Your principal amount, interest rate, remaining term and amortization period move from your current to your new house — and you won't have to pay a prepayment charge.

  • Take equity out of your home

    As you pay your mortgage principal or your property value increases, you build up equity in your home. You can tap into that equity with a Home Equity Line of Credit (HELOC), like a TD Home Equity FlexLine, which often offers lower interest rates than unsecured lines of credit.

  • Renew your mortgage early

    You may be able to renew your mortgage early without paying a prepayment charge — at TD you can renew 120 days before your mortgage maturity date. You can also renew early at any time, but you may have to pay the charge. A Mortgage Specialist can help you understand the cost.

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