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What Lenders Don’t
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Most lenders will tell you their mortgage comes with standard features—portability, blending, and prepayment options. But what they don’t tell you is that the fine print can make all the difference. The way penalties are calculated, how portability actually works, and whether your mortgage can be blended fairly (or at all) can cost you thousands—or lock you into a mortgage that no longer fits your needs. The standard line is “we all do it the same way.”
Two lenders can offer the same rate, but one could charge you double the penalty if you break your mortgage early. Some lenders say their mortgages are portable, but their restrictions make it almost impossible to transfer to a new home. Many lenders advertise that you can blend your mortgage, but in reality, you may be forced to break your mortgage and pay a penalty instead. It’s a little late to find out all the details when your lawyer drops a 40 page mortgage document in front of you to sign so let’s break down the fine print that lenders don’t openly discuss—so you can make an informed decision.
Two lenders can offer the same rate, but one could charge you double the penalty if you break your mortgage early. Some lenders say their mortgages are portable, but their restrictions make it almost impossible to transfer to a new home. Many lenders advertise that you can blend your mortgage, but in reality, you may be forced to break your mortgage and pay a penalty instead. It’s a little late to find out all the details when your lawyer drops a 40 page mortgage document in front of you to sign so let’s break down the fine print that lenders don’t openly discuss—so you can make an informed decision.
Penalties: The Hidden Cost of Breaking Your Mortgage
- Not all mortgage penalties are created equal. If you need to break your mortgage before the term ends—whether you're moving, refinancing, or accessing equity—your lender's penalty calculation could make a massive difference.
- 3-Month Interest vs. Interest Rate Differential (IRD): Some mortgage products charge a simple 3-month interest penalty, while others use IRD and some use the greater of the two penalties.
- What is an IRD penalty: Simply put, if you sign but for a 5 yr mortgage at 5% and current rates are at 4% and you have 3 yrs remaining on your term the lender calculates how much money they have foregone if you break the mortgage early.
- Bank vs Non Bank lenders: Both types of lenders calculate penalties differently so it is important that you know the difference as you don't want to find out after the fact that your chosen lender has a significantly higher penalty.
- Does your mortgage allow penalty discounts? Some lenders offer reduced penalties if you stay with them, while others charge the full amount regardless. In fact some will completely waive the penalty under certain circumstances.
Portability: Can You Take Your Mortgage With You?
Porting your mortgage means moving it to a new home without breaking the contract (and avoiding penalties).
- Are there restrictions? –Some lenders only allow portability if the new home meets strict conditions (e.g., same province, loan-to-value limits). In addition some types of mortgages may not be ported to another property. (insured vs insurable vs non insurable).
- Is there a time limit?– Most lenders require you to close on the new home within 30-120 days, or you lose portability.
- Will you need more funds?– If your new home is more expensive, you may need to blend your rate or take a second mortgage.
- Personal Loans – Fixed-rate loans that help simplify payments and provide a clear debt repayment timeline.
- Balance Transfers – In some cases, transferring credit card balances to a lower-interest option can provide short-term relief.
“Imagine selling your home thinking you can port your 2% mortgage, only to find out your lender doesn’t allow it for your new property.” Now you may have to pay a penalty, lose a 2% rate with a new rate that is higher.
Blending: Can You Avoid a Penalty by Adding to Your Mortgage?
If you need to increase your mortgage (for a move, renovation, or investment), you don’t always have to break your existing loan. Some lenders allow you to blend your current rate with new funds, avoiding a full penalty.
Two Types of Blends:
- Blend & Extend – Combines your current mortgage with new funds at a weighted average rate, extending your term. This factors in how much more money you require plus how much you are extending the term.
- Blend to Term – Keeps your original term length but at a new blended rate. (ie. If half your mortgage is at 5% and the other half is at 3% your blended rate would be 4%).
- Adding a new tier: – Some mortgage products allow for adding a whole new tier to your mortgage while leaving the existing tier in tact.
- Does your lender allow true blends?– Some lenders don’t actually blend– they charge a full penalty and then blend the penalty into the new rate.
- Would a refinance be cheaper?– Sometimes, breaking your mortgage and securing a completely new rate is a better option.
- Various options: – When porting or blending on to your existing mortgage your lenders should be showing you the rates for the various option.
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