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Reasons Borrowers Break Their Mortgage Agreement Early

July 23, 2018 | Posted by: Christopher Chanakos

Potential Reasons for Breaking Your Mortgage Early

When you decide on a 5-year term option on your mortgage, you assume that the next 5 years will pass with no incident. However, sometimes life throws us a curveball and, in most cases, we have not anticipated or prepared for it. This is why most people signing a mortgage end up paying penalties.

Mortgage penalties can range anywhere from $2,000, all the way to $16,000...and beyond depending on the bank and the amount of your mortgage. This penalty will also vary based on the terms of your mortgage (variable vs fixed…) The average penalty on a fixed term of 4 years or longer is 4.5% of the balance whereas with a variable rate mortgage the penalty is around 0.5% of the balance. With approximately 60% of Canadians breaking their mortgage agreement within 38 months, the fixed vs variable rate decision requires careful consideration.

Below are the more common reasons borrowers break their mortgage agreement early:

Consolidate Debt

If you're struggling under a large amount of debt at a high interest rate, it might be beneficial to add that amount on to your mortgage, pay off your debt with that money, and have the debt tied into your mortgage at a rate which is more reasonable.

A Need to Renovate Your Home

If the house you bought isn’t turning out the way you planned and you need to remodel certain parts but don’t have the money, adding an amount on your mortgage to re-do the kitchen, fix the leaky roof, or add in an extension can all be obtained by adding onto your mortgage.


Where two people get married and both own a property, it is not always feasible to keep both properties. On the other hand, if you need to sell/move out of your house due to divorce, you are going to have to break your mortgage. Divorce is already an emotional/financial stress and the last thing you need to be thinking about at this time the penalty to break your mortgage.

Maternity/Paternity Leave

This is probably the best reason on the list! If you or your partner are about to have a baby, this is a time to redo your mortgage. You might need a different payment schedule now that maternity/paternity leave is on the horizon and there are baby expenses on the way!

Getting Laid Off/Change of Job

Unfortunately, this one of those things we cannot often foresee. If this happens and you’re in a tough circumstance where the current mortgage payment schedule is not working for you, it is time to make a mortgage reschedule that does.

Moving to a New Home

Whoops! You just bought a home and something didn’t work out. Perhaps you are relocating due to work or your house isn’t what you thought it was. If you move to a new home, unless you have a portable mortgage, you will have to break your current mortgage and get a new one.

Investing or Starting a Business

So, you have decided to start your own business. Great! Now might be the time to refinance in order to free up capital.

 Health Issues

Unexpected health issues can put a strain on finances. This is especially true for borrowers carrying a large debt load including a large mortgage.



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