Mortgage brokers should be able to provide adequate assistance regarding additional payments on the various types of home loans they currently offer. If a client inquires about paying extra on a fixed loan, their broker should explain that they are eligible to make payments equalling up to $20,000 a year without incurring break costs. Clients will have a year from the date the fixed loan has begun.
A client who makes additional payments equalling over $20,000 may be subjected to facing break costs, which is a penalty incurred through making repayments to discourage a client from refinancing their loan too soon. A mortgage broker will calculate their client’s break costs based on a variety of factors, including the following:
- The amount of time a client has before the expiration of their fixed-rate mortgage
- The amount a client’s interest rates have fluctuated since the beginning of their fixed rate mortgage term
- The amount a client is paying on their fixed-rate mortgage principal
- Access to security against interest rate changes
Fixed-rate break costs allow a mortgage broker to recoup the loss they will suffer if their client decides to refinance their loan or break their mortgage terms.
Mortgage brokers should inform their clients of any rules or regulations regarding additional payments on fixed loans so they can have an adequate understanding of the expectations.
If an individual is interested in learning more about making additional payments on their existing fixed-rate home loan, we highly recommend getting in touch with the current mortgage broker to inquire about their individual regulations and expectations.