Mortgage Penalties - Episode 1 of How to Sell a Condo in Vancouver
How to Sell a Condo in Vancouver 1 – Getting Started and Avoiding Mortgage Penalties
Welcome to Episode 1 of How to Sell Your Vancouver Condo. This series of videos will give a detailed step by step explanation of how to sell a condo in Vancouver. Please feel free to contact me at any time if you have a question!
So You Want to Sell Your Condo…
Most people in Vancouver have a mortgage on their condo. Those fortunate people who don’t have a mortgage on their condo, go ahead and skip to Episode 2.
I Pay A Penalty if I Want to Sell My Condo? What?!
When a borrower gets a mortgage on a property the borrower signs a contract (the mortgage) that commits the borrower to pay the lender a series of payments over a specified period of time. If the borrower wants to end this contract early, the lender has to be compensated. In this case that would be a mortgage penalty.
Talk to Your Mortgage Lender First, Before Anyone!
Jessi Johnson of the Jessi Johnson Mortgage Team was kind enough to come meet with me to explain the two types of penalties when a mortgage is ended early. For a variable rate mortgage the penalty is generally 3 months interest, which in most cases is not that much because variable rate mortgage interest rates tend to be lower than fixed rate mortgages. It can get VERY EXPENSIVE when ending a fixed rate mortgage on your Vancouver condo, because they can be subject to an IRD or Interest Rate Differential.
What is an IRD?
Jessi Johnson defines the Interest Rate Differential or IRD as such on his site:
“An IRD amount is a compensation charge that may apply if you pay off your mortgage principal prior to the maturity date or pay the mortgage principal down beyond the prepayment privilege amount. The IRD amount is calculated on the amount being prepaid using an interest rate equal to the difference between your existing mortgage interest rate and the interest rate that we can now charge when re-lending the funds for the remaining term of the mortgage.”
Jessi also has a great Interest Rate Differential Calculator on his site that you can use to see how big a penalty you may need to pay if you want sell your condo in Vancouver.
When in Doubt, ASK YOUR LENDER AND GET IT IN WRITING!
If you’re not sure what your penalties are make sure to ask your mortgage lender and they should be able to tell you how much your penalty is to end your mortgage early.
*** Make sure you get it in writing from your lender that there are no penalties if you sell your condo, verbal assurances from a bank or a lender are WORTH NOTHING! ***
If you’re selling a revenue property, be sure to speak to your accountant. There may be tax implications when selling an investment property. I will cover selling investment properties in detail in an upcoming series of videos.
Be sure to check out Episode 2 of How To Sell Your Condo in Vancouver: Taxes on the Sale Proceeds!
Not Selling? Check out How to Buy a Condo in Vancouver!