If you have a variable rate mortgage and you prepay more than is allowed by your prepayment privileges, you will be subject to prepayment charges. You may also be subject to a prepayment charge if you:
Refinance your mortgage.
Pay out your mortgage to transfer it to another lender.
How to calculate prepayment charges
For variable rate mortgages, the prepayment charge is equal to 1% of the mortgage amount outstanding plus three months’ interest calculated using the interest rate on your mortgage.
To estimate your prepayment charge, you can use the following calculation:
[1% x mortgage amount outstanding] +
[mortgage amount outstanding x interest rate x 3 months]
Using these formulas will give you a good estimate of your prepayment charge. The actual prepayment charge may be slightly higher than the estimated value. Calculate your estimated prepayment charge.
Prepayment charges may change because you’re paying down your principal as you make payments. Part of each payment you make goes toward paying down your principal and, as a result, decreases your prepayment privilege over time.