The penalty charged to a homeowner if he or she decides to pay off their mortgage before the end of their mortgage term. When breaking a closed fixed-rate mortgage, a lender will charge the borrower the greater of three months interest or an interest rate differential (IRD). An IRD is calculated using the amount the homeowner has paid into the mortgage term and the difference between the homeowner’s original interest rate and the rate the lender charges at present. Each lender calculates penalties differently, and some lenders don’t even allow a mortgage to be broken unless there is a bona fide sale.
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