What are Mortgage Prepayment Charges? | Mortgages

When does a prepayment chargeOpens a popup. apply?

Prepayment charges may apply when you prepay your mortgage balance before the maturity dateOpens a popup. and you:

Renew, refinance or pay off your mortgage mid-term
Prepay more than your annual prepayment privilege amount
Refinance your mortgage and choose a new term
Transfer your mortgage to another lender

Review important mortgage terms

Open and closed mortgages

Fixed-rate and variable-rate mortgages

Short-term and long-term mortgages

Pay off your mortgage faster

A mortgage is a big commitment. Most mortgages are paid over 25 years, but you can pay them off faster. Reducing the number of years you make mortgage payments can add up to big savings.

There are several ways to pay down your mortgage and get out of debt faster without paying prepayment charges.¹

Increase your payment amount

You can increase your payment amount up to 100% of the original regular payment at any time over the mortgage term. If you increase your payments, you could pay down the principal faster.

Example: If you raise your monthly payment by $170 from $830 to $1,000, you could save almost $48,000 in interest over the amortization periodOpens a popup.. You could pay off your mortgage about 8 years sooner.

Increase your payment frequency

You can make your regular mortgage payments more often. This saves you money in interest charges over the mortgage term by paying down the principalOpens a popup. faster.

Example: If you make accelerated biweekly payments of $415 instead of monthly payments of $830, you could save almost $27,000 in interest over the amortization period. You could pay off your mortgage about 4.5 years sooner.

Make an annual prepayment of 10%, 15% or 20% depending on your product

You can make lump-sum payments to pay down your mortgage faster. To avoid prepayment charges, your payment cannot exceed your allowable prepayment privilege. A lump-sum payment is applied directly to the principal if there's no interest owing. This saves you money over the life of your mortgage.

Example: If you make a $1,000 lump-sum payment annually, you could save almost $28,350 in interest over the amortization period. You could pay off your mortgage about 4 years sooner.

Prepay at renewal

You can pay as much as possible at renewal. All CIBC mortgages become open at the end of the mortgage term. This means you can pay as much as you want on your mortgage before you renew.

Example: If you choose a 5-year, fixed-rate term and make a $10,000 lump-sum payment every time your mortgage comes up for renewal, you'll save about $37,481 in interest over your amortization period. You could pay off your mortgage about 6 years sooner.

How to avoid prepayment charges

If you want to prepay your mortgage, there are several ways to avoid prepayment charges.

Port your mortgage

If you're selling and buying a new home, your mortgage may have a portability option that lets you portOpens a popup.³ (or move) your existing mortgage term, outstanding principal and maturity date to a new property.

Mortgage assumption

If you're buying a new home, you may have the option to assume (or take over) the seller's mortgage, with the existing terms and conditions on closing.

Choose an open mortgage

If you have an open mortgage, you can pay off as much of your mortgage any time without a prepayment charge.

How are prepayment charges calculated?

Here's how to calculate prepayment charges based on your mortgage type.

Fixed-rate closed mortgages

If you have a fixed-rate closed mortgage, your prepayment charge will be the greater of the following:

3 months' interest on the amount you prepay. Interest is calculated at your annual mortgage interest rate, plus any discount you received
The interest rate differential (IRD) on the amount you prepay

At CIBC, the interest rate differentialOpens a popup. is the difference between the following 2 amounts:

Interest over the remaining term of your mortgage, calculated at your current mortgage interest rate, plus any interest rate discount you received
Interest over the remaining term of your mortgage, calculated at CIBC's current posted interest rate for the comparison mortgage identified in your mortgage documents

For a full prepayment, the prepayment charge is calculated on the full amount of the prepayment. For a partial prepayment, the prepayment charge is calculated on the amount of the prepayment that's more than your annual prepayment privilege amount.

Variable-rate closed mortgages

If you have a variable-rate closed mortgage, your prepayment charge will be 3 months' interest on the amount you prepay. Interest is calculated at the CIBC prime rate.

For an exact amount of your prepayment charge, order a payout statement or call 1-888-264-6843Opens your phone app. (for Quebec 1-800-813-1833Opens your phone app.). You can also estimate your prepayment charge with our mortgage prepayment charge calculator.

Example: Martin has a variable-rate mortgage. If he wants to pay off the entire principal, the prepayment charge is equal to 3 months' interest on the entire amount he's prepaying, calculated at the CIBC prime rate in effect on the date the mortgage payout statement is prepared. Martin still owes $60,000 on his mortgage. If the mortgage payout statement is prepared today, and if the current CIBC prime rate is 5.0%, here's how Martin estimates the prepayment charge to pay off the entire mortgage:

Estimating the prepayment charge for a variable-rate closed mortgage

Summary	Amount
Step 1: Start with the total prepayment amount.	$60,000
Step 2: Then, find the CIBC prime rate on the date the mortgage payout statement is prepared (displayed as a decimal). For example, 5.00% becomes .050.	0.05
Step 3: Multiply the prepayment amount by the interest rate. This is equal to an estimate of one year's interest.	$3,000
Step 4: Divide the annual interest amount by 12 to estimate one month's interest.	$250
Step 5: Multiply one month's interest by 3 to get an estimate of 3 months' interest. This is an estimate of the prepayment charge.	$750

When Martin pays off his mortgage, he'll need to spend an estimated $750 to pay for the prepayment charge.

Example: Estimating the prepayment charge for a fixed-rate closed mortgage

Maria has a 5-year fixed-rate closed mortgage. When she arranged the mortgage, she received an interest rate discount of .50%. Her existing annual interest rate on her mortgage is 6.50%.

The principal amount she still owes is $100,000. She has 2 years (or 24 months) left in the term of this mortgage. But, Maria has just inherited some money and wants to pay off the mortgage.

In Maria's case, the prepayment charge will be the higher of the following 2 amounts:

3 months' interest at her interest rate of 6.50% plus the discount she received of .50%, which is equal to 7.00%; or
The interest rate differential amount

Estimate of 3 months' interest

Summary	Amount
Step 1: Start with the amount to pay off	$100,000
Step 2: Write the current interest rate plus the discount received as a decimal. For example, 7.00% becomes .07.	0.07
Step 3: Multiply the amount to prepay by the interest rate plus the discount ($100,000.00 x 0.07) to calculate the estimated annual interest costs.	$7,000
Step 4: Divide the estimated annual interest costs by 12 to calculate an estimate of 1 month's interest.	$583.33
Step 5: Multiply 1 month's interest costs by 3 to calculate an estimate of 3 months' interest.	$1,749.99

So, an estimate of 3 months' interest would be $1,749.99.

Estimate of the interest rate differential amount

Steps	Amount
Step 1: The interest costs over the mortgage term with Maria's current principal balance of $100,000, the monthly payment of $693.47, a 2-year term (which is the remaining term of the mortgage) and the interest rate plus the discount that she received, which is 7.00%, is $13,603.92.	$13,603.92
Step 2: In Maria's case, the comparison mortgage is the CIBC 2-year fixed-rate closed mortgage. On the date we prepare the mortgage payout statement, the posted rate for this product is 5.00%.	0.05
Step 3: The interest costs over the term of a CIBC 2-year fixed-rate closed mortgage, with the same principal amount as Maria's remaining balance of $100,000, the same monthly payment amount of $693.47 and our current posted rate of 5.000%, would be $9,567.59.	$9,567.59
Step 4: The interest calculated in Step 3 is subtracted from the interest set out in Step 1. This is the interest rate differential amount.	$4,036.33

An estimate of the interest differential amount would be $4,036.33.

Estimated prepayment charge

Maria's prepayment charge is the higher of the estimated 3 months' interest costs of $1,749.99 and the estimated interest rate differential amount of $4,036.33.

So, if Maria's mortgage payout statement was prepared today, an estimate of her prepayment charge would be $4,036.33.

The timing of your prepayment, changes in the interest rate and changes in your payment amount can affect the IRD calculation. You can use the CIBC prepayment charge calculator to find out how these changes affect your prepayment costs.

What additional charges may apply when prepaying a mortgage before the maturity date?

Cash back repayment:

If you received a cash back amount when you entered or renewed your mortgage you may be required to repay the cash back when you:

Prepay the mortgage in full
Ask us to transfer the mortgage to another lender (a "switch")
Renew the mortgage with an effective date that is before your current mortgage matures
Refinance the mortgage
Transfer title to the property and arrange for the mortgage to be assumed by the new owner
Port the mortgage

Mortgage discharge fee/assignment fee:

You'll pay a discharge fee and/or assignment fee for document preparation and registration when you prepay the mortgage in full
You'll pay an assignment fee if you ask us to transfer your mortgage to another lender

For more information about mortgage options and prepaying your mortgage, go to the Financial Consumer Agency of CanadaOpens a new window in your browser. or learn more about FCAC mortgage details.Opens a new window in your browser.

Let’s talk about mortgages

To refinance your mortgage and use your home equity, learn about the CIBC Home Power® Mortgage or the CIBC Home Power Plan Borrowing Solution.

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Information on mortgage prepayment

When does a prepayment chargeOpens a popup. apply?

Review important mortgage terms

Pay off your mortgage faster

Increase your payment amount

How to avoid prepayment charges

Port your mortgage

Mortgage assumption

Choose an open mortgage

How are prepayment charges calculated?

Fixed-rate closed mortgages

Estimating the prepayment charge for a variable-rate closed mortgage

Summary

Amount

Summary

Amount

Estimate of the interest rate differential amount

Steps

Amount

Estimated prepayment charge

What additional charges may apply when prepaying a mortgage before the maturity date?

Let’s talk about mortgages To refinance your mortgage and use your home equity, learn about the CIBC Home Power® Mortgage or the CIBC Home Power Plan Borrowing Solution.

Learn more about mortgages

Let’s talk about mortgages

To refinance your mortgage and use your home equity, learn about the CIBC Home Power® Mortgage or the CIBC Home Power Plan Borrowing Solution.