Paying Off Your Mortgage Early: What You Need to Know About Penalties in 2025
Planiprêt
Aug 11, 2025
Many homeowners dream of becoming mortgage-free ahead of schedule. But before writing that final cheque or transferring your loan, it’s essential to understand the potential costs involved. In 2025, prepayment penalties remain a key factor to consider in any mortgage strategy.
Not All Mortgages Are Created Equal
Repayment conditions vary depending on the type of mortgage you hold:
Open Mortgage
- Maximum flexibility: you can repay at any time without fees.
- In exchange, interest rates are generally higher.
Closed Variable-Rate Mortgage
- Standard penalty: three months of interest.
- The rate may fluctuate, but exit fees are predictable.
Closed Fixed-Rate Mortgage
- More complex penalty: the greater of three months of interest or the interest rate differential (often referred to as IRD or DTI).
- This method compensates the lender if rates have dropped since your contract was signed.
How Are Penalties Calculated?
The well-known “interest rate differential” (IRD) takes into account:
- The rate in your original contract
- The current reinvestment rate for a comparable term
Some institutions use the posted rate minus any discount granted, while others rely on actual rates offered for similar products. These variations can significantly impact the amount you’ll need to pay.
What’s New (or Clearer) in 2025
- Prepayment privileges: Many lenders allow you to repay up to 15% of the principal annually without penalty or increase your regular payments.
- Portability: If you sell and repurchase within 30 to 90 days, part of the penalty may be refunded (fully or partially).
- Additional fees: Some contracts include reinvestment fees or require repayment of cash-back incentives.
- Non-transferable products: In some cases, you’ll need to convert your fixed-rate loan before transferring it to a new property.
In Summary
Paying off your mortgage early can be a smart financial move—provided you understand the rules. In 2025, options are more varied, but conditions differ from one lender to another. Careful planning will help you avoid surprises and maximize your savings.
Questions?
Contact us today to discuss your mortgage situation. Whether you're considering early repayment, renewal, or transfer, we're here to guide you toward the best decision.
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