How can I estimate my prepayment charges?

 

Prepayment charges are generally calculated in two ways:

1. As a 3 month interest penalty.
2. As an interest rate differential.

Tangerine always charges a 3 month interest penalty for variable rate mortgages, and the higher of the two prepayment charge methods on a fixed rate mortgage. Our mortgage prepayment calculator can also help you out.

Using the following information, here is how the penalty is calculated with the 3 month interest method and the Interest Rate Differential method:

Mortgage balance remaining: $100,000

Current interest rate: 3.49%

Remaining term: 2 years from the original 5 year fixed term

Tangerine’s 2 year fixed interest rate: 3.25%

3 month interest penalty

This is calculated using the following formula:

(Current interest rate × Mortgage balance remaining) ÷ Total months in the year (12) × three (3) months

(3.49% × $100,000) ÷12 × 3 = $872.50 is the estimated 3 month interest penalty.

Interest Rate Differential penalty

This is calculated using the following formula:

Step 1: Calculate Differential Interest Rate:

Differential Interest Rate= Current interest rate - Tangerine comparison interest rate based on the remaining term.

3.49% - 3.25% = .24% is the Differential Interest Rate

Step 2: Using Differential Interest Rate, calculate the prepayment charge:

Differential Interest Rate × Mortgage balance remaining × Remaining term

(0.24% X $100,000) × 2= $480.00 is the Interest Rate Differential penalty.

In this example, the 3 month interest penalty is higher than the Interest Rate Differential. Therefore, this is what would be applied.

Note: The above calculations are estimates and present an approximate projection of the actual penalty amount. Please contact Tangerine for exact prepayment charges.