When people come see me for a mortgage, they are often focused solely on the interest rate. While rate is important, there are so many other mortgage features that need to be considered, like the penalty. In general, most lenders calculate penalties the same way but how they interpret that calculation can vary across the board. What does this mean? Your penalty with lender “A” can be far greater than the penalty with lender “B” for the exact same situation.
Something else that we are seeing a lot of these days are lenders offering discounted interest rates for limited products with much higher penalties. More often than not, the client doesn’t know about the higher penalty until they need to make a change to the mortgage and it’s too late.
No one ever expects to pay a mortgage penalty, but the reality is that homeowners generally move, refinance or make some sort of change to their mortgage every 3.5 years. Given that the standard term is 5 years, a lot of people do end up paying the penalty on their mortgage.