Information on Mortgage Prepayment
CIBC is dedicated to understanding what you want from your borrowing and to helping you find the right solution to meet your needs. When it comes to your mortgage, CIBC offers you the flexibility to pay down your mortgage faster or to pay it off at any time.
Before deciding on your mortgage solution, take a moment to review our prepayment options to ensure your CIBC Mortgage suits your specific needs.
Learn more about your options by reviewing our information on mortgage prepayments below.
What is an open mortgage?
An open mortgage can be prepaid, in part or in full, during the term of the mortgage without paying a prepayment charge. The interest rate on an open mortgage is often higher than the interest rate on a closed mortgage. An open mortgage can provide flexibility until you are ready to lock into a closed term.
What is a closed mortgage?
A closed mortgage is one that cannot be prepaid, renegotiated or refinanced before the end of the term without paying a prepayment charge. However, most closed mortgages contain certain prepayment privileges, such as the right to make a prepayment of 10-20% of the original principal amount each year, without paying a prepayment charge.
A closed mortgage often has a lower interest rate than an open mortgage.
What is a fixed interest rate mortgage?
- With a fixed interest rate mortgage, in most cases your interest rate does not fluctuate during the mortgage term. Your regular mortgage payment amount does not change.
- You know exactly what your regular payments will be and how much of the principal balance will be paid off during the term.
What is a variable interest rate mortgage?
- With a variable rate mortgage, the interest rate changes with changes to the CIBC Prime Rate. In addition, your regular mortgage payment amount is fixed and does not change.
- When the CIBC Prime Rate decreases, the amount of interest you pay will also decrease. A smaller portion of your regular mortgage payment will be applied to pay interest, and a larger portion will be applied to pay down the principal amount of your mortgage.
- When the CIBC Prime Rate increases, the amount of interest you pay will also rise. A larger portion of your regular mortgage payment will be applied to pay interest, and a smaller portion will be applied to pay down the principal amount of your mortgage.
Why choose a short term mortgage?
A short term mortgage generally offers a lower interest rate than a longer term mortgage. When current rates are high and you think rates may drop, choosing a short term mortgage allows you to lock in for a shorter period. A short term mortgage may also be a good option if you plan to sell your home or pay off the mortgage early.
Why choose a long term mortgage?
A long term mortgage generally offers a higher interest rate than that of a shorter term mortgage. When current rates are reasonably low, choosing a longer term mortgage secures the interest rate for a longer period of time and makes budgeting easier.
How can a mortgage be paid off faster without paying a prepayment charge?
A mortgage is a big commitment. Most mortgages are paid over 25 years but we have some tips to help you pay yours 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 incurring prepayment charges.1
Increase Your Payments
- You can increase your payment amount by up to 100% of the original regular payment, at any time over the mortgage term. This allows you to pay down your principal faster.
For example, if you increased your mortgage payment amount by $170 from $830 to $1,000, you could save almost $48,000 in interest over the entire amortization period of your mortgage. You could also pay off your mortgage about 8 years earlier.
Increase Your Payment Frequency
- You can make your regular mortgage payments more often, which saves you money in interest charges over the long run as your principal is paid down faster.
For example, if you made accelerated bi-weekly payments of $415 instead of monthly payments of $830, you could save almost $27,000 in interest over the entire amortization period of your mortgage. This would allow you to pay off your mortgage about 4.5 years sooner.
Make an Annual Prepayment of 10%, 15% or 20% Depending on Your Product
- You have the option of making lump-sum payments to pay down your mortgage faster. To avoid any prepayment charges, your payment must not exceed your allowable prepayment privilege. A lump-sum payment is applied directly to the principal if there is no interest owing. This saves you money over the life of your mortgage.
For example, if you make a $1,000 lump-sum payment annually, you could save almost $28,350 in interest over the entire amortization period of your mortgage. This would allow you to 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.
For example, if you chose a 5-year, fixed-rate term, and made a $10,000 lump-sum payment every time your mortgage came up for renewal, you would save about $37,481 in interest over the entire amortization period of your mortgage, allowing you to pay off your mortgage about 6 years sooner.
1 For illustration purposes only. Payment option scenarios assume a 5-year closed, fixed-rate mortgage of $120,000 with a 25-year amortization and a constant annual interest rate of 6.85% over the entire life of the mortgage compounded semi-annually, monthly payments of $830 and assumes no additional payments. Actual rates will vary, which will affect your payment amount, your mortgage payout date and the amount you could save.
2 Payment options are subject to the terms and conditions of your mortgage. In some cases, making a prepayment on your mortgage or paying off your mortgage early can lead to a prepayment charge, depending on the type of mortgage you have. Prepayment charges may also apply if you renew early or refinance your mortgage. Please contact us in advance to discuss all your options.
How can prepayment charges be avoided?
You have a number of options available to prepay your mortgage and avoid prepayment charges:
If you’re selling and buying a new home, your mortgage may have a portability option that allows you to Port3 your existing mortgage term, outstanding principal balance and maturity date to a new property
If you’re selling your home, the purchaser may have the option of applying to assume your mortgage with the existing terms and conditions on closing
Enjoy the flexibility to pay off as much of your mortgage any time without paying a prepayment charge.
3 Subject to approval and eligibility based the terms of the mortgage.
Please contact your nearest CIBC branch to learn more about assuming someone else's mortgage, or having a potential purchaser assume your mortgage.
When does a prepayment charge apply?
- Renewing your mortgage before the maturity date
- Prepaying more than the amount of your annual prepayment privilege
- Refinancing your mortgage and selecting a new term
- Transferring your mortgage to another lender
- Paying off your mortgage before the maturity date
In all of the above scenarios, the mortgage balance is being prepaid before the maturity date, which may result in a prepayment charge.
How are prepayment charges calculated for a fixed rate closed mortgage?
If you have a fixed rate closed mortgage, your prepayment charge will be the greater of the following:
- three months' interest on the amount you are prepaying. Interest will be calculated at your annual mortgage interest rate, plus any discount you received
- the Interest Rate Differential on the amount you are prepaying
What is interest rate differential (IRD)?
If you prepay your mortgage, you may be charged a prepayment charge. There are different methods for calculating prepayment charges. In some cases, the amount charged is the Interest Rate Differential amount. At CIBC, the Interest Rate Differential amount is the difference between the following two 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 is more than your annual prepayment privilege amount.
How are prepayment charges calculated for variable rate closed mortgages?
If you have a variable rate closed mortgage, your prepayment charge will be three months interest on the amount you are prepaying. Interest will be calculated at CIBC Prime Rate.
Examples of prepayment charge calculations
The following illustrates how prepayment charges are calculated. To estimate your prepayment charge, use the CIBC Mortgage Prepayment Charge Calculator.
Example of estimating the prepayment charge for a variable-rate closed mortgage
Martin has a variable rate mortgage. If Martin wanted to pay off the entire principal amount, the prepayment charge would be equal to three months' interest on the entire amount he is prepaying, calculated at the CIBC Prime Rate in effect on the date the mortgage payout statement is prepared.
Martin still owes $60,000.00 on his mortgage. If the mortgage payout statement were prepared today, and if the current CIBC Prime Rate is 5.000%, here is how Martin estimates the prepayment charge to pay off the entire mortgage.
When Martin pays off his mortgage, he will need to pay an estimated additional amount of $750.00 to pay for the prepayment charge. This is only an estimate. Martin can inquire regarding the exact amount of his prepayment charge by ordering a payout statement or by calling 1-888-264-6843 (for Quebec 1-800-813-1833).
Example of 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 .500%. Her existing annual interest rate on her mortgage is 6.500%.
The principal amount she still owes is $100,000. She has two years (or 24 months) left in the term of this mortgage. However, 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 two amounts:
- three months' interest at her interest rate of 6.500% plus the discount she received of .500%, which is equal to 7.000%; or
- the interest rate differential amount
The following shows an estimated prepayment charge for prepaying the full amount of Maria's mortgage:
Estimate of 3 Months' Interest
Estimate of the Interest Rate Differential Amount
The Estimated Prepayment Charge
Maria's prepayment charge is the higher of the estimated three 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.
Maria should call CIBC Mortgages to find out the exact amount of her prepayment charge. The amount above is only an estimate. Maria can inquire regarding the exact amount of her prepayment charge by ordering a payout statement or by calling 1-888-264-6843 (for Quebec 1-800-813-1833).
The timing of your prepayment, changes in the interest rate and changes in your payment amount can have an impact on the IRD calculation. You can use the CIBC Prepayment Charge Calculator to see how these changes affect your prepayment costs.
What additional charges may apply when prepaying a mortgage?
There are sometimes additional charges that may apply when prepaying a mortgage in full 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. Below are examples of situations where cash back repayment may be required. 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
- A discharge fee and/or assignment fee for document preparation and registration when the mortgage is prepaid in full.
- If you ask us to transfer your mortgage to another lender, an assignment fee will apply.