On Tuesday, March 2, 2021 at 9:47:12 AM UTC-5, wrote:
On Tue, 2 Mar 2021 06:24:23 -0800 (PST), trader_4
wrote:

On Tuesday, March 2, 2021 at 12:44:39 AM UTC-5, wrote:
On Mon, 1 Mar 2021 23:07:18 -0500, Ralph Mowery
wrote:

In article ,
says...

On the other hand, those who got variable rates in 1992 when they
were starting at 9.25%, made out quite well as they quickly dropped
to 7 and later 5%.



When the rates drop one can usually negociate for the lower rates even
on fixed rates, or go to another bank (lender).
You'd need to buy your way out of the mortgage - the penalty
is usually the interest they are losing plus a fee for the
trouble.
John T.

Is that how it works in Canada? Not here in the US. I've never seen a mortgage
with a pre-payment penalty at all and I would bet that it's probably illegal in many
states. I've refinanced many times with no penalty. The only costs are whatever
it takes to get the new mortgage, eg application fee, appraisal fee, misc fee, etc.
We would call that an " Open " mortgage - it helped me pay off my
first house 1981-87 by putting $ 50 - 150 against the principle on
payday, whenever I could. Standard mortgages would allow a paydown
once-per-year on the anniversary - and it was often limited to a
given % of principle. 10 - 20 % iirc ?
"Open Mortgages" were available but not common then - the rates were
higher. The stiff penalties were introduced during that crazy era of
interest rates in the early 1980's
I was at 18.5 % for a while in 1982
The olde standard, to get out of a mortgage was a 3-month
interest penalty - in the early 80's new mortgages quickly became
ALL the remaining interest !
That same terrible era also saw the advent of short term mortgages ;
eg. 3 month ; variable rate mortgages ; weekly payments ; etc
John T.

So doing the math, if it's a three month penalty and you had a 6% mortgage,
getting out would cost you 1.5%. If the new loan is 1% lower, your recover
that in 1.5 years. But you'd also have the other associated new loan costs
to recover. Bottom line you can still pay off early in Canada to move to a
lower rate, but the interest rate differential has to be wider to make it
practical. Also timing becomes more important. When you can pay off
with no penalty, it makes it easier to shop around for a new loan with low
upfront costs that if you have that penalty to contend with. Sometimes
here it could makes sense to refinance for 0.5%, typically at 1% it's a no
brainer. What happens if you sell the property, same pre-payment penalty?
This is interesting because the US is thought of as more of the free
capitalism country, Canada more socialistic, buy we have no penalty,
you do.