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Mortgage Prepayment

Making a
prepayment?

Learn more about your options by exploring the most frequently asked questions about mortgage prepayments.

Understanding Mortgage Types

Expand Fixed Interest Rate or Variable Interest Rate

Fixed Interest Rate

  • Your interest rate will not change throughout the entire term of your mortgage.
  • You'll always know exactly how much your payments will be and how much of your mortgage will be paid off at the end of your term.

Variable Interest Rate

  • Your interest rate may fluctuate from time to time because it changes when the TD Mortgage Prime Rate changes.
  • If your interest rate decreases, your payment amount remains the same, but more of your mortgage payment is applied to the principal balance owing.
  • If your interest rate rises, your payment amount remains the same, but more of your monthly payment will go toward interest.
  • At certain times, you may be required to revise your payment arrangements. Please ask us for details.

Expand Open or Closed

Open Mortgage

  • Requires you to make set payments at set times but also lets you pay any amount toward your mortgage at any time, without having to pay a prepayment charge for doing so.
  • Interest rates are typically higher for this type of mortgage.

Closed Mortgage

  • Requires you to make set payments at set times and pay prepayment charges if you want to pay more than allowed, renegotiate or refinance your mortgage before the end of your term.
  • Interest rates are typically lower for this type of mortgage.

Expand Long Term or Short Term

Long Term

  • A long term mortgage is generally for three years or more.
  • A long term mortgage is often the best choice when you are comfortable with the interest rate and you want the security of budgeting for the future.

Short Term

  • A short term mortgage is usually for two years or less.
  • A short term mortgage is a good option if you believe interest rates will drop by your maturity date.

Expand Home Equity Line of Credit

TD Home Equity FlexLine offers the convenience and flexibility of:

  • A variable interest rate that changes with TD Prime Rate.1
    • Prepaying your principal balance with no prepayment charges for the variable rate portion; as you pay down your outstanding balance, your available credit within your credit limit increases.
  • Apply once. You can access your available credit within your credit limit anytime without having to re-apply.2
  • Pay at your own pace – make monthly interest only payments or pay as much as you want.3
  • Protect yourself from interest rate increases and establish regular fixed payments (subject to minimum amounts) with our Fixed Rate Advantage Option.

Fixed Rate Portion

  • Requires you to make set payments at set times over a closed term and to pay prepayment charges if you want to pay more than allowed, renegotiate or refinance before the end of your term.
  • Just like a fixed rate mortgage, your interest rate will not change throughout the entire term of your fixed rate portion.
  • You'll always know exactly how much your payments will be and how much will be paid off at the end of your term.

Expand Can I prepay without paying a prepayment charge?

Your prepayment charge will depend on what type of mortgage you choose.

For Open Mortgages:

  • You will not have to pay a prepayment charge if you decide to pay off your mortgage before the Maturity Date.

For Closed Variable Interest Rate Mortgages:

  • If you decide to pay off your mortgage before the mortgage term ends (the Maturity Date), or to pay an amount greater than your allowable prepayment privileges, you may have to pay a prepayment charge.
  • The prepayment charge is calculated as 3 months' interest.

For Closed Fixed Interest Rate Mortgages or TD Home Equity FlexLines with a Fixed Rate Portion:

  • If you decide to pay off your mortgage before the mortgage term ends (the Maturity Date), or to pay an amount greater than your allowable prepayment privileges, you may have to pay a prepayment charge.
  • The prepayment charge is the greater of 3 months' interest or an Interest Rate Differential (IRD) amount.

The IRD amount is equivalent to the difference between your annual interest rate and the posted interest rate on a mortgage that is closest to the remainder of the term less any rate discount you received, multiplied by the amount being prepaid, and multiplied by the time that is remaining on the term (see below for some examples).

Prepayments

  • Make one or more prepayments up to 15% of your original principal every year.

Increase your payment amount

  • Increase your payment amount by up to 100% of your original regular mortgage or fixed rate portion payment.

Increase your payment frequency

  • Switch to rapid weekly or rapid bi-weekly payments and make up to an extra month's payment every year.

Expand How can I avoid paying prepayment charges altogether?

Whether you're paying off your mortgage in full because you are moving, or simply paying down your principal sooner, your TD mortgage gives you a number of options for prepaying without paying prepayment charges.

Portability Plus

  • Take your current mortgage interest rate and term with you to your new home – and avoid prepayment charges for paying off your mortgage before the Maturity Date (does not apply to Home Equity Lines of Credit with a fixed rate portion).

Make prepayments within your privileged amount

  • Make one or more prepayments up to a total of 15% of the original principal every year.

Choose an open mortgage

  • Pay any amount toward your mortgage at any time, without having to pay a prepayment charge for doing so.

Expand Can I reduce my prepayment charges?

There are a number of ways to reduce prepayment charges when paying off a mortgage or TD Home Equity FlexLine with a fixed rate portion.

In many cases, you can reduce the prepayment charges that may be applicable when you payout and reduce the amount of interest you pay over time. Some examples of how you can achieve this are:

  • Over the term, increase your monthly payment by up to 100% of the original regular mortgage or fixed rate portion payment
  • Each calendar year, make one or more lump-sum payments of up to 15% of the original principal amount
  • Change your payment frequency to a more frequent payment schedule

By reducing the principal balance of your mortgage or fixed rate portion, you will reduce the balance on which the Interest Rate Differential (IRD) or 3 months' interest is calculated.

Expand How are prepayment charges calculated?

Although it can sometimes seem confusing, TD uses a precise formula to calculate any prepayment charges you may be required to pay.

For a closed variable rate mortgage your prepayment charge is 3 months' interest (90 days), calculated on your remaining mortgage balance on the date of prepayment.

For closed fixed rate mortgages or TD Home Equity FlexLines with a fixed rate portion, your prepayment charges for the mortgage or the fixed rate portion will be the greater of:

The difference between your annual interest rate and the posted interest rate on a mortgage that is closest to the remainder of your term, less any rate discount you received, multiplied by the amount being prepaid, and multiplied by the time that is remaining on the term.

3 months' interest (90 days) or the Interest Rate Differential Amount

How to estimate Three Months' Interest (90 days)

Step 1: ________ (A)

The amount you want to prepay

Step 2: ________ (B)

Your current annual interest rate expressed as a decimal (for example, 6.75% = .0675)

Step 3: ________ (C)

A x B = C

Step 4: ________ (D)

C ÷ 4 = D
D = Your estimated three months' interest amount

How to estimate the Interest Rate Differential Amount

Step 1: ________ (A)

Your current annual interest rate expressed as a decimal (for example, 6.75% = .0675)

Step 2: ________ (B)

The posted interest rate for a Similar Mortgage, less any rate discount received by you under the Mortgage

If the number of months remaining on your Mortgage, excluding the current month, is… …then the term used to determine the posted rate for the Similar Mortgage would be:
Less than 9 months 6 month convertible
9-17 months 1 year closed fixed rate
18-29 months 2 year fixed rate
30-41 months 3 year fixed rate
42-53 months 4 year fixed rate
54-65 months 5 year closed, fixed rate
66-77 months 6 year fixed rate
78-101 months 7 year fixed rate
102-120 months 10 year fixed rate

How to choose the right term and corresponding interest rate for your calculation

Step 3: ________ (C)

A - B = C, which is the difference between your current annual interest rate and the interest rate in B above (write C as a decimal)

Step 4: ________ (D)

The amount you want to prepay

Step 5: ________ (E)

The number of months remaining on the term of your Current Mortgage

Step 6: ________ (F)

(C x D x E) ÷ 12 = F

F = Your estimated Interest Rate Differential amount

David and Susan have 28 months remaining on the term of their mortgage. They have a mortgage balance of $100,000 and are paying an interest rate of 5% which includes a 1% rate discount off of the posted rate when they set up their mortgage. They have recently received a gift of $100,000 from Susan's parents and would like to use it to pay off their outstanding balance. The current Similar Mortgage Rate is 4%. This is the posted rate for a Similar Mortgage less the 1% rate discount they received.

How to estimate three months' interest

Step 1
The amount they want to prepay
$100,000 [A]
Step 2
Their current annual interest rate expressed as a decimal
0.05 [B]
Step 3
A x B = C
$100,000 x 0.05 = $5,000 [C]
Step 4
C ÷ 4 = D
$5,000 ÷ 4 = $1,250
David and Susan's estimated 3 months' interest cost = $1,250

How to estimate Interest Rate Differential Amount

Step 1
Their current annual interest rate expressed as a decimal
0.05 [A]
Step 2
The posted interest rate for a Similar Mortgage, less their 1% rate discount received on their mortgage
0.04 [B]
Step 3
A - B = C
0.05 – 0.04 = 0.01 [C]
Step 4
The amount they want to prepay
$100,000 [D]
Step 5
The number of months remaining on their current mortgage
28 [E]
Step 6
(C x D x E) ÷ 12 = F
(0.01 x 100,000 x 28) ÷ 12 = $2,333 [F]
David and Susan's estimated IRD amount is = $2,333

Based on the calculations above, David and Susan would pay an estimated prepayment charge of
$2,333 – the higher of the two calculation amounts.

Example

Payment timing and interest

Payment timing, payment amount and interest rate changes can have a big impact on your IRD amount calculation. Use the prepayment calculator[link to prepayment calculator] to see how changes can impact your prepayment charges.

Expand When would I have to pay a charge?

Scenario What will it cost? To avoid the fee

Paying more than your prepayment privileges allow

The greater of:
3 months' interest
or
the Interest Rate Differential

Track the value of your annual prepayments carefully to ensure they don't exceed 15% of the original principal amount every year.
It is important to note that if you are prepaying in full prior to your maturity date, your 15% prepayment privilege will not be automatically applied

Refinancing (increasing your borrowing amount) before the Maturity Date

The greater of:
3 months' interest
or the Interest Rate Differential

When selecting your mortgage options, consider choosing an open or short term mortgage if you think you might want to refinance at some point in the near future.

Transferring your mortgage to another lender before the end of your term

The greater of:
3 months' interest
or
the Interest Rate Differential

Consider choosing an open or short term mortgage if you think you might wish to transfer your mortgage to another lender at some point in the near future.

Are there any other fees when paying off or paying down my mortgage or home equity line of credit with a fixed rate portion?

If you prepay your mortgage in full, other fees may apply.

Other fees

Reinvestment Fee

  • If you prepay your mortgage in full during the first term (i.e. you never renewed your mortgage)

Mortgage Discharge Fee

  • This is an administration fee for preparing the discharge request

Mortgage Assignment Fee

  • This applies if you request to assign your mortgage to another financial institution, rather than a discharge

Cashback Reimbursement

  • If you received a cashback payment in connection with your mortgage, you may be required to reimburse a proportionate amount. This applies in the following situations:
    • You prepay the mortgage in full
    • We assign the mortgage to another lender at your request
    • You renew the mortgage and that renewal is effective before the maturity date of your current mortgage term

The amount of the Cashback Reimbursement is calculated as follows:

Administration Fee for Open Variable Interest Rate Mortgages

  • This is an administration fee that is charged if you prepay your mortgage in full:
    • first year = $500
    • second year = $250
    • after two years = $0