Five Solid Reasons to Wait Until Maturity

In a fluctuating mortgage rate environment, many Quebec borrowers consider breaking their mortgage to take advantage of better conditions. However, this decision is not always the best financial option. Patience can prove considerably more profitable in certain well-identified situations. Before contacting your mortgage broker to explore a contract break, carefully evaluate these five reasons that might convince you to wait for the natural maturity of your term. Each situation is unique and deserves a personalized analysis, but these criteria provide an excellent starting point for informed reflection.

Reason 1: The Penalty Erases the Savings

The most common and compelling reason to wait is that the breakage penalty exceeds potential savings. For fixed-rate mortgages in Quebec, major banks typically use the interest rate differential (IRD) calculation based on the posted rate rather than the discounted rate actually obtained, which considerably inflates the penalty. For example, on a balance of $400,000 with a fixed rate of 5.5% and a current posted rate of 4.0% for a residual term of 36 months, the IRD penalty could reach $18,000 to $24,000 depending on the lender's methodology. Even with monthly savings of $300, it would take 60 to 80 months to amortize this penalty — well beyond the remaining term.

Reason 2: Less Than 18 Months Remaining

When your mortgage term is approaching maturity, the window to recover breakage costs shrinks considerably. The fixed costs of a mortgage break — legal fees ($1,200 to $2,500), appraisal fees ($350 to $500), discharge fees ($250 to $350) — are added to the penalty and must be amortized over the short remaining period. If your term expires in 12 months and the rate gap is 0.75%, the monthly savings on a $350,000 balance would be approximately $219, or $2,625 over 12 months. After deducting fixed costs of approximately $2,000 and even a minimal penalty, the net benefit would be negligible or zero. Moreover, as maturity approaches, you have the right to freely shop for a new rate from all lenders without any penalty — a considerable advantage worth exploiting.

Reason 3: A Short-Term Sale Plan

If you are considering selling your property within the next two years, breaking your mortgage now could constitute an unnecessary double penalty payment. Upon sale, the mortgage is automatically repaid from the sale proceeds, and the applicable penalty at that time will be significantly lower since the residual term will be shorter. Some Quebec mortgage contracts also offer a portability clause allowing you to transfer your current rate to the property you are purchasing, thereby eliminating any penalty. Even without portability, the penalty at the time of sale is often compensable in the sale price negotiation or simply absorbed as a normal transaction cost.

Reason 4: Qualification Compromised by B-20 Rules

OSFI's mortgage qualification rules, particularly the B-20 stress test, require borrowers to qualify at the higher of 5.25% or the contractual rate plus 2%. If your financial situation has changed since your last financing — increased total debt service ratio, decreased income, new borrowing — you may not be able to qualify for a new loan at the desired conditions. In this case, your current mortgage, even at a higher rate, represents a commitment that you could not reproduce under current market conditions. This situation is particularly common among self-employed workers with fluctuating incomes and borrowers who have taken on additional debts since obtaining their mortgage.

Reason 5: Generous Prepayment Privileges

Many Quebec mortgage contracts offer prepayment privileges allowing annual payments of 10% to 20% of the original loan amount without penalty. If your contract allows 20% prepayment and the original amount was $400,000, you can contribute up to $80,000 per year directly to the principal, significantly reducing your balance and interest without any fees. Additionally, several lenders allow you to increase your regular payments by 10% to 25% from the initial amount, thereby accelerating principal repayment. By combining these two strategies, you can substantially reduce the total cost of your mortgage without paying any penalty, making a break unnecessary in most cases.

1. Check your maturity date: Review your mortgage contract or annual statement to confirm the exact end date of your current term and calculate the number of months remaining.
2. Request a penalty statement: Contact your lender to obtain the exact amount of the breakage penalty as of today, including the calculation method used (IRD or three months' interest).
3. Evaluate your prepayment privileges: Check your contract's prepayment provisions: annual percentage allowed, ability to increase payments, and deadlines for making additional payments.
4. Consult a mortgage broker: An AMF-certified broker can perform a free comparative analysis of your situation and recommend the best strategy: wait for maturity, use prepayment privileges, or proceed with the break.

Prepayment privileges

Contractual provisions allowing the borrower to make additional payments on their mortgage principal without penalty. These privileges typically include an annual percentage of the original amount (10% to 20%) and the ability to increase regular payments (10% to 25%). Conditions vary by lender and must be verified in the original mortgage contract.