A mortgage is either “open” or “closed” An “open” mortgage is one that allows the property owner to sell or refinance and pay off the mortgage without paying a penalty to the financial institution. If your mortgage is maturing, you may, on the maturity date, payoff the mortgage without payment of a penalty. Most mortgages are “closed” mortgages. If your mortgage is a “closed” mortgage then it is very important for you or your agent to obtain mortgage verification from your mortgage company. This mortgage verification will set out the amount of the anticipated penalty or, at the very least; the method of calculation the mortgage company will use to determine the penalty. As a rule of thumb, when paying off a “closed” mortgage the property owner must pay a penalty equal to no less than three (3) months interest on the principal balance owing at closing at the interest rate provided for in the mortgage. Be careful, in some cases the penalty can greatly exceed 3 months interest! Remember, there are no hard and fast rules setting out the way in which penalties are calculated. The penalty on any particular mortgage is determined by the language of that mortgage. Sometimes the language can be very technical. It is ALWAYS a good idea to communicate with your lender.
Your lender will automatically apply an administration fee or processing fee for the preparation of the discharge and for a government registration fee when the mortgage is discharged.