Breaking Your Fixed Mortgage


Should You Break Your Fixed-Rate Mortgage Contract?


Are you thinking about breaking your fixed-rate mortgage? While traditionally considered a financial faux-pas, many Canadians choose to break their fixed-rate mortgage when they find their current terms and conditions no longer meet their needs.

“Breaking a fixed-rate mortgage occurs more often than you would think,” Jared Ksenica, Regional Vice-President, Mortgage Specialist, with BMO Bank of Montreal said.

Of course, there are penalties to pay for breaking a mortgage. When you break a mortgage contract, the penalty is supposed to cover the lender's costs related to unwinding the loan, while also recouping part of their lost profit. The amount is dependent on the interest rate and the mortgage balance.

According to Ksenica, some of the most common reasons for breaking a mortgage include refinancing for debt consolidation, purchasing a second property and helping children with their education or helping them buy a home.

Another reason to break a mortgage is to take advantage of a lower interest rate. If you've been watching rates lately, you may be wondering if you could break your fixed-rate mortgage to save money in the long-term with a cheaper interest rate.

This may sound like a good idea, but be forewarned: trying to figure out what you'll be charged for breaking a fixed-rate mortgage is very difficult, with homeowners often miscalculating the cost of their penalty.

What are the advantages of breaking a fixed-rate mortgage?


John Tarnowski, Executive Vice President, Retail Financial Services at ATB Financial, says it's important customers look beyond the rate and compare the full mortgage package to determine what's best for them.

“If moving to a variable or new fixed-rate term will save interest costs over the remaining mortgage term, it might be worth doing, even if they have to pay a prepayment penalty,” he says. “If a person’s life or lifestyle has changed, it might also be a good time to consider this option.”

These kinds of decisions shouldn’t be taken lightly and it’s best to discuss options with a mortgage specialist. Despite paying the penalty upfront for breaking a mortgage, there may or may not be effective savings in the long-term—especially if you're facing high penalties.

What are the penalties for breaking a mortgage? 


The biggest disadvantage of breaking a mortgage is the out-of-pocket penalties. And they're often much, much higher than you might have anticipated.

Fixed-rate mortgage penalties are always calculated based on whichever is greater: “the greater of a) three months interest or b) the interest-rate differential (IRD),” with the IRD being the difference between the existing mortgage rate and the interest rate currently charged.

However, there are key differences in the actual rates lenders use to calculate your IRD and this can greatly impact your penalties. The Standard IRD is what most people think of when breaking a mortgage, whereby the lender takes the difference between your contract rate and their current rate that most closely matches your remaining term.

But there's also the Discounted Rate IRD Penalty (used by RBC, BMO, TD, Scotia and National Bank). Banks who use this IRD format take your contract rate, compare it to the posted rate that most closely matches your remaining term and then subtract the original discount you got off of their five-year posted rate.

This small tweak that can make a huge difference in terms of the penalties you can incur. Using this calculation, it's possible for an IRD to jump from the Standard $1,500 to $9,000.

The Posted Rate IRD Penalty (used by CIBC) can have even steeper penalties. In this variation, the bank calculates your IRD penalty using the five-year posted rate they offered when you initially got your mortgage.

Get informed about the penalty calculators your particular lender will use before signing any mortgage contract so there are no nasty surprises down the road.

If you decide to break your fixed-rate mortgage but you want to stay with the same lender, ask if they offer penalty discounts. While not all lenders offer this type of incentive, some may be willing to reduce your penalties if you decide to stay with them. mortgage contract but still stay with them. In this case, Tarnowski says you can break your mortgage “in conjunction with a new mortgage,” minimizing the penalty by making a lump sum payment on their mortgage.

Be sure to check out our affordability calculator to find out how much you can afford and use our handy mortgage calculator to determine your ideal amortization period and down payment options.

The article above is for information purposes and is not financial or legal advice or a substitute for financial or legal counsel.

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by Mario Toneguzzi

Winter Maintenance Ideas for Safe and Warm Homes

Yes it has been darn cold and your furnace has probably been working overtime.  To ensure that your home is cozy and warm even during the coldest of weather next year check for any leaks at doors and windows now. Write them down in a list and ensure that you address them when the weather warms up a bit. 





Following are some tips from CMHC  

Winter is the season when people cozy up indoors. The winter season evokes thoughts of comfort food and curling up in front of the fire or television. Home becomes the preferred comfortable space for the whole family during long winter months. This is why it’s so important to ensure your home is in a good state of repair this time of year. Here are 5 tips for you and your clients to properly maintain your homes this winter. 

Keep your house or apartment building warm and prevent costly heat loss


The first thing is to ensure that your building’s heat source is in working order. Ideally, your heating system should be serviced annually by a qualified professional. If it’s new, ask them to check if systems were properly installed. Replace furnace air filters at the beginning of the winter season. Clogged air filters slow a furnace down causing it to use more energy and run less efficiently.

Next, make sure caulking around windows and doors are in good shape and replace damaged glass panes on windows and doors. Another way to minimise heat loss is by installing storm doors (where applicable).


Avoid frozen pipes


Never turn the heat off completely during the winter. Maintain adequate temperatures and air circulation throughout the house or building. If you are leaving for a prolonged period, make sure a family member or friend can check that all is in working order. 


Watch out for snow accumulation


It is very easy to lose control of your property if the snow is not removed quickly after a storm. This applies to the front of the building, all air intakes, exhaust vents and any electrical appliance located outside.

Large amounts of heavy snow should be removed from the roof regularly. A snow rake is a useful tool for this purpose. For safety, you may want to hire a professional to do it for you.

Keep fire safety in mind!


Home fires tend to increase in the winter months. The main reasons are a malfunction of the heating system or a fireplace that is left unattended. Fireplaces and chimneys need regular cleanings to remain safe and effective. Also, check all emergency exits and ensure they are unobstructed. Make sure fire extinguishers are maintained and kept in easily accessible locations.
If you are using your fireplace for additional heat, make sure you open the doors to remote rooms in your house especially the furnace room.  Your furnace may not kick in and your pipes may freeze.

Maintain smoke and carbon monoxide detectors


It is very important to regularly test smoke and carbon monoxide detectors and check their batteries. This is especially important in the winter, when we keep the windows shut and typically use wood stoves and fireplaces more often. (Make it a habit to change the batteries at the beginning of every season.)

Home maintenance can take some time and effort. The time you spend protecting your property will make it more comfortable for you or your tenants. It will also avoid costly problems in the long run.

Photo by Photo by Ryan Wu
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How Six Friends Pooled Their Money to Buy a $1.3 Million House


In the area numerous people living in one house is not news, nor is a home being 1 million or more.  What is most incredible is that the young people in the following article got together to purchase a home that they could call their own.  Perhaps this is the start of something wonderful and with a bit of work we may see more people in the Bow Valley use this model to purchase.


What might be the first arrangement of its kind allowed a half-dozen young people shut out of the prohibitively expensive market to actually own a place—and they seem to be making it work.


It was a simple mission, but an unusual one. A year and a half ago, six young people embarked on a journey to own a home in one of Canada’s hottest housing markets––together.

It’s really the only way that any of them could consider owning a house in Toronto, where both renting and buying present a real challenge to millennials. The average price of a home in Toronto was $787,300 in 2018, while a condo was $552,269, making it one of the most expensive markets in Canada.

To put that into context, a household earning the median income in Ontario of about $74,000 can (with a solid credit rating) afford a mortgage for a home in the $415,000 range, which gets you an entry-level condo. Detached houses in Toronto, on the other hand, come with an average price tag of $1.3 million––which is what they ended up buying collectively.

The six people––whose ages range from 28 to 38 years old––pooled their money and made it happen. It took a lot of work, a ton of meetings, and many frank conversations. But it started with one radical idea: that the benefits of cohabitating, combining their resources and skills, would lead to a far better standard of living than they could ever achieve on their own.

Valery Navarrete is one of the six housemates and she was told by lenders and mortgage brokers alike that this kind of arrangement was a first in Toronto, maybe even in Canada. She believes it’s exactly the kind of thing that would solve a lot of issues millennials have related to housing in the city: from renters who could be evicted for renovations at the whim of their landlord, to people being priced out of both the ownership and rental markets.

Navarrete says she hopes co-ownership for community living catches on and that others benefit from their trailblazing because it took them a lot of time and effort to find a lender that was willing to do extra work for a uniquely-structured mortgage, and wasn’t going to make them pay a premium for it. “Some of it is prejudice against things that are different,” she told VICE. “Our society privileges traditional family units in so many ways. Some of those barriers are actual policies but others are attitudes.”

Not only is it complicated to secure a mortgage this way, most lenders aren't willing to do it without charging significantly more, and it could lead to problems down the road when it comes time to sell. You also need to be cool with living with a bunch of other people for the next while––not to mention figuring out who gets the best bedroom and closet space.

Is this a first? Probably.

This type of co-ownership arrangement is extremely rare in Canada. So rare in fact, that it was a challenge to find any stats beyond anecdotal evidence on how common these types of arrangements are becoming. VICE reached out to the Canada Mortgage and Housing Corporation (CMHC), Statistics Canada and the Canadian Bankers Association and none of them track this trend specifically. VICE also reached out to the country’s five biggest banks RBC, TD, CIBC, BMO, and Scotiabank and none of them would answer our specific questions about whether or not this is a Canadian first.

The consensus among the mortgage experts VICE connected with, including people who have worked at the major banks, is that this six-friend (as opposed to six family members or couples) deal, is unique and possibly a first. Arrangements have been made, for example, among three couples sharing different sections of a house, with each twosome having their self-contained “home within a house.” But six friends living together like this, seems to be one for the books.

Banking on it

The details of actually purchasing the house are fairly uneventful. In December of 2017, the group made a $1.3 million “lowball” offer on a home in Toronto’s Little Portugal neighbourhood that was listed for more than $1.4 million and it was accepted. But the process leading up to that fateful day is far more complicated.

They took possession three months later and began a complex renovation project to turn one of the two kitchens into a sixth bedroom, add a third bathroom, create an open-concept living room and redo the basement to include a seventh bedroom for guests, among other things. The 2,500-square-foot house includes a basement, large backyard and a two-car garage (which houses 8 bikes and one car) in a residential West Toronto neighbourhood.

That six people––five women and one man, none of whom are romantically involved with each other––were ready and willing to participate in co-homeownership turned out to be easier than finding a traditional lender who would take on this type of mortgage arrangement. This, despite the fact that all six are gainfully employed and have “excellent credit scores.”

They approached two major banks, and the reception they received was mixed. Navarrete said they even had one bank adviser who was “open and willing to put forward our application with a decent interest rate to head office for approval” but that there was “definitely an understanding that this was not their norm.”

They eventually found a traditional lender, DUCA Credit Union, with a service specifically for co-buying that can accommodate up to six people on title. All six of the housemates are on the mortgage, though their ownership varies from two to 38 percent. (Other credit unions offer similar mortgage options including Meridian, whose “Family + Friends Mortgage” allows a maximum of four co-owners. Vancouver-based credit union Vancity offers a “Mixer mortgage” for “one or more friends, roommates, co-workers, or family members”).

Payments by Navarrete and her co-owners on their five-year fixed term mortgage are divided up based on ownership. Recurring costs like hydro and groceries are split evenly between the six people. All of this is made possible with regular in-person meetings, group chats, many lists and several spreadsheets.

With an arrangement like this, although ownership is divided into six pieces, from a lender's perspective, it is a single mortgage for that house. That means if one or more people default, all six are on the hook. If this mortgage goes sour, all six co-owners' credit scores will be negatively affected and that will impact their ability to borrow in the future.

Sabeena Bubber is a North Vancouver-based senior mortgage professional for Xeva Mortgage. “Lenders prefer that the parties are actually related to each other in some way shape or form. We’re used to seeing families living under one roof, it’s less common to see six people living together successfully so lenders don’t necessarily like that,” she says. “If one person loses the ability to pay, you can’t foreclose on one-sixth of a house. So it affects all parties.”

Increased demand

James Davenport is a branch manager at Meridian’s Broadview location in downtown Toronto. He’s seen a noticeable uptick in demand for co-ownership. “More and more people are looking for that, especially young people looking to get into the market and not having the capital that’s required by themselves,” he says.

Davenport speaks from more than four years of experience with clients asking for this kind of service. Of the dozens of co-ownership deals he’s been involved in, “none have fallen apart,” which he says is impressive. Having multiple people on the hook for mortgage payments “spreads out the risk.” However, he does point out that having that many people involved increases the chances of some of those relationships not working out.

Navarrete’s view is that having six people responsible for the mortgage actually decreases the chance of default. She has owned a home before, with a partner––a more traditional mortgage setup which she feels is intrinsically riskier. “Think about it: one person loses their job and it gets really difficult. We’re talking about six incomes instead of just two.”

To minimize the risk, Davenport says the best approach to successful co-ownership is “like having a prenup,” with a clearly-laid-out plan for all the worst-case scenarios. Everything that can go wrong should be mapped out in terms of implications for the mortgage as well as insurance. It means asking a lot of tough questions. “What happens if somebody wants to leave? When somebody dies? Do the others automatically inherit that share or does it go to that person’s estate? What happens if there’s a breakdown between individuals? If they’re no longer on speaking terms, how is that going to be handled?”

Difficult conversations

Rizkallah says part of the hard work he and his housemates put into this project was getting to know each other’s finances very intimately. He says the level of detail they delved into was way beyond what his married friends discussed before buying a place with their partner. “We had really open and honest, sometimes difficult conversations about money. Not just how much we make and how much we want to contribute but also our feelings about money,” he says.

Together, they devised how they would handle “every possible scenario” and put it in writing. Navarrete explains how they have a legal agreement and “a code,” which lays out the kind of culture they want to create and how they want to cohabitate. She describes it as “three pages of pretty high-level stuff.” That covers the basics.

When it came to more nuanced decisions, like how to decorate the place, Rizkallah feels that the six-headed approach made for a more democratic process. He’s basing that on nasty fights he’s observed among his married friends. “Some of the couples that I spoke with, they had to pick an accent wall colour and it almost tore their marriage apart,” he says with a laugh. The housemates’ disagreements were pretty tame in comparison.

Another bonus, is that it frees up time and resources when it comes to grocery shopping (which is done for the group, based on requests, with the costs divided evenly) and cooking. Once a week, they make an effort to have dinner together. They rotate which house member is responsible for cooking. The arrangement has created some memorable meals, and conversations over wine.

Rizkallah has one sibling, an older brother, and he says he’s always wanted a sister growing up. “I feel like I lucked out with five wonderful ‘sisters.’” Other housemates describe this as “an alternative family” or an “intentional family.”

Community and connection

Beyond the financial advantages of pooling resources, Rizkallah says cohabitating is the antidote to an urban culture that leaves millennials feeling alienated. “We have a loneliness epidemic, this individualistic model to how we live our lives. Living in community is better. It’s way more enjoyable and fun and rewarding to live with people.”

The latest census data shows that there are more Canadians living alone than ever before. In fact, one-person households have become the norm and represent nearly a third of all living situations, and the most common living arrangement.

Navarrete works in the mental health field and has a deep understanding of the importance of maintaining social connections in urban centres. She recalls living on her own and working hard to do things like arranging the simplest get-togethers. “There was a lot of energy that went into that. Endless text messages of trying to figure out your plans just to have a meal with someone.” Now, she says she’s found a group of people that she can “go through life’s highs and lows with,” and where sharing and being part of a community is built in. “It’s the difference between having a house and having a home.”

It’s not for everyone, but she says more people should consider it.

Photo by Fabrizio Verrecchia
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