How To Sell a Condo in Vancouver Episode 1: Mortgage Penalties?
This is Episode 1 of How to Sell Your Vancouver Condo. This new video series will be your start to finish guide of how to sell your residential condo in Vancouver, B.C. No question is too simple! Contact me any time with your questions and/or comments. Click the previous link and scroll down to the comments sections. All submissions are read and answered by me personally.
What's the Status of Your Mortgage? Will You Have to Pay a Mortgage Penalty?
If you are fotunate enough to have no mortgage on your condo, lucky you, skip to Episode 2!(Coming Soon)
Your mortgage is a contract that commits you to pay your lender a series of payments over a specified period of time. If you want out of your contract early, you'll have to pay a mortage penalty in order to compensate your lender. The amount of this compensation varies according to the terms of your contract.
Talk to Your Mortgage Lender First!
Jessi Johnson of the Jessi Johnson Mortgage Team was kind enough to come meet with me to explain the two types of penalties when a mortgage is ended early. For a variable rate mortgage the penalty is generally 3 months interest, which in most cases is not that much because variable rate mortgage interest rates tend to be lower than fixed rate mortgages. It can get VERY EXPENSIVE when ending a fixed rate mortgage on your Vancouver condo, because they can be subject to an IRD or Interest Rate Differential.
What is an IRD?
Jessi Johnson defines the Interest Rate Differential or IRD as such on his site:
“An IRD amount is a compensation charge that may apply if you pay off your mortgage principal prior to the maturity date or pay the mortgage principal down beyond the prepayment privilege amount. The IRD amount is calculated on the amount being prepaid using an interest rate equal to the difference between your existing mortgage interest rate and the interest rate that we can now charge when re-lending the funds for the remaining term of the mortgage.”
Jessi also has a great Interest Rate Differential Calculator on his site that you can use to see how big a penalty you may need to pay if you want sell your condo in Vancouver.
When in Doubt, ASK YOUR LENDER!
If you’re not sure what your penalties are make sure to ask your mortgage lender and they should be able to tell you how much your penalty would be should you chose to end and pay out your mortgage early.
Is Your Condo a Revenue Property? Talk to Your Accountant!
If you’re selling a revenue property, be sure to speak to your accountant. There may be tax implications when selling an investment property. I will cover selling investment properties in detail in an upcoming series of videos.
Be sure to check out Episode 2 of How To Sell Your Condo in Vancouver! (Coming Soon!)