Pre-Payment Privileges & Penalties
Smart flexibility, tailored for life
At Better Mortgage Select, we believe a well-structured mortgage should do more than just help you buy a home—it should grow with you, flex with your life, and position you for long-term success.
Whether you’re accelerating your mortgage payoff, restructuring your finances, or preparing for a major life change, understanding your mortgage’s pre-payment privileges and potential penalties is critical. We’re here to help you navigate that complexity—strategically.
Why flexibility matters more than ever
Life changes—and so do your priorities. Over time, you might need to:
- Make lump sum payments to reduce your principal
- Increase your regular payment amount
- Adjust your payment frequency (e.g. switch to accelerated bi-weekly)
- Refinance to consolidate debt or tap into equity
- Pay off your mortgage early or transfer it to another lender
But here’s the catch: not every mortgage gives you the freedom to make those moves without significant costs. That’s where the right advice—and the right lender—makes all the difference.
Understanding the two types of mortgages
(And what they let you do)
Open mortgages
- Fully flexible—pay down or pay off anytime, penalty-free.
- Higher interest rates make them less common for long-term borrowing.
Closed mortgages
- Lower interest rates, typically with better features.
- Come with restrictions—early changes may trigger penalties.
- Fixed-rate closed mortgages: Predictable, but may carry large penalties.
- Variable-rate closed mortgages: Usually lower penalties, but rate can fluctuate.
Knowing which structure works best for your financial goals is part of the strategic planning we do for every client.
Pre-payment features that can work in your favour
High-quality mortgage products offer more than just good rates—they give you room to breathe.
Here are key privileges you should expect from a premium mortgage:
1. Extra payment flexibility
Top-tier lenders allow you to increase your regular payments—often by up to 15–100% annually. Every dollar over your minimum goes directly toward reducing your principal faster.
2. Lump sum pre-payments
Most quality lenders allow you to put down lump sum payments of 10–20% of your original mortgage amount annually—without penalty. That’s a powerful way to shave years off your amortization.
3. Flexible payment frequency
Switching from monthly to accelerated bi-weekly payments can lead to significant long-term savings. The key is choosing a lender that offers this flexibility without fees or red tape.
4. Recasting (re-amortizing) your mortgage
Make a lump sum payment and want to lower your monthly payments without refinancing? Certain lenders offer mortgage “recasting”—and we’ll help you find them.
Penalties: What you don’t know can
cost you thousands
When you break or change your mortgage mid-term, penalties can apply. Here’s what to expect:
Early payout penalties:
- Variable-rate mortgage: Typically 3 months’ interest.
- Fixed-rate mortgage: Greater of 3 months’ interest or the Interest Rate Differential (IRD).
What is the IRD?
It’s a formula lenders use to calculate what they lose when you exit a fixed-rate mortgage early. The problem? Every lender calculates it differently—and some are much more aggressive than others.
At BM Select, we review every IRD policy and factor it into our recommendations.
The hidden danger of “too good to be true” rates
Many online discount mortgage sites advertise ultra-low rates—without disclosing the strings attached:
Bona fide sale clauses that lock you in
Hefty IRD penalties
Inflexible products that restrict refinancing or early payout
Many online discount mortgage sites advertise ultra-low rates—without disclosing the strings attached:
Clarity comes first.
No pressure, no surprises.
Not sure what your current mortgage allows—or what it could cost to make a change?
Let our expert team review it for you, with no obligation. We’ll break down your pre-payment privileges, any risks, and the smartest way forward.
Know your options. Avoid costly surprises. Make informed moves.
Smart mortgage flexibility
Know your options. Avoid costly mortgage surprises.
Let’s talk strategy, not just rates
At Better Mortgage Select, we work with high-performing lenders that offer rate AND flexibility—so you’re not cornered into one-size-fits-all solutions.
Contact us today to speak with a dedicated Mortgage Specialist and find out how to align your mortgage with your life, not the other way around.