The mortgage payout penalty is the amount that a borrower has to pay if they want to pay off their mortgage before the end of the term. The penalty is calculated based on the terms of the mortgage contract and can vary depending on a number of factors, including the remaining term of the mortgage, the interest rate, and the amount of the mortgage.
Here's a general overview of how you can calculate your mortgage payout penalty:
Check your mortgage agreement: The first step in calculating your mortgage payout penalty is to check your mortgage agreement to see what the terms and conditions are for early payout. This will tell you what type of penalty you will have to pay and how it will be calculated.
Calculate the Interest Rate Differential (IRD): The most common type of mortgage payout penalty is the Interest Rate Differential (IRD). This penalty is based on the difference between the interest rate on your mortgage and the current market rate for a mortgage with the same term and remaining amortization period. To calculate the IRD, you need to know your mortgage interest rate, the remaining term of your mortgage, and the amount of your mortgage.
The formula for the IRD calculation can vary depending on the lender and the specific terms of the mortgage agreement, but here is a general formula for the IRD calculation:
IRD = (I - R) x P x T
IRD: The Interest Rate Differential
I: The interest rate on the mortgage being broken
R: The current interest rate for a mortgage with the same remaining term and amortization period as the mortgage being broken
P: The outstanding balance on the mortgage being broken
T: The remaining term of the mortgage being broken (in years)
Determine the Penalty Amount: Once you have calculated the IRD, you can determine the penalty amount. This will typically be the greater of the IRD or three months' interest on the remaining balance of the mortgage.
To calculate the 3-month interest payout penalty, you need to know the interest rate on your mortgage and the remaining balance of your mortgage. Here are the steps to calculate the 3-month interest payout:
Determine the annual interest rate: Find out the annual interest rate on your mortgage by looking at your mortgage agreement or contacting your lender.
Calculate the daily interest rate: Divide the annual interest rate by 365 to calculate the daily interest rate. For example, if your annual interest rate is 4%, the daily interest rate would be 0.04 / 365 = 0.0001096.
Determine the remaining balance of your mortgage: Check your mortgage statement or contact your lender to find out the current remaining balance on your mortgage.
Calculate the 3-month interest: Multiply the daily interest rate by the remaining balance of your mortgage and then multiply that result by the number of days in three months (which is 90 days). For example, if your remaining mortgage balance is $100,000 and the daily interest rate is 0.0001096, the 3-month interest would be 0.0001096 x $100,000 x 90 = $985.20.
Round to the nearest cent: The 3-month interest payout penalty should be rounded to the nearest cent.
It's important to note that the 3-month interest payout penalty may not be the only penalty for early mortgage payout. The penalty can vary depending on the terms of your mortgage agreement and the policies of your lender. Be sure to check your mortgage agreement and consult with your lender to understand the specific terms and conditions for early payout.
Consult with your lender: It's important to keep in mind that the exact calculation of the mortgage payout penalty can vary depending on the terms of your mortgage agreement and the policies of your lender. If you have any questions about how your mortgage payout penalty is being calculated, it's best to consult with your lender directly.
It's also worth noting that some mortgage agreements may not have a payout penalty, or may have a lower penalty if the mortgage is paid off after a certain period of time. Make sure to review your mortgage agreement carefully to understand the terms and conditions for early payout.