80 KING STREET EAST STONEY CREEK – HAMILTON, ON L8G 1K2 PHONE: FAX: MORTGAGECONCEPTS.ca

INTEREST RATE DIFFERENTIAL ONE CHOICE. ONE BIG DIFFERENCE. FIND OUT WHY 

WHAT IS INTEREST RATE DIFFERENTIAL? IRD refers to a calculation that Mortgage Lenders use to determine the cost of breaking a fixed rate mortgage. This protects the lender should you choose to end your mortgage term early. Standard Fixed Rate Mortgages are generally subject to a penalty that is the greater of IRD, or 3 months of Interest. In the Mortgage Industry there are two ways in which your IRD can be calculated. In order to figure out the IRD calculation, we need to know: - the amount left owing on the mortgage - your current interest rate - the current market rates

THE IRD CALCULATION, WE CHOOSE: — WHAT YOU SEE IS WHAT YOU GET— Your Current Rate Multiply by the Time Left Take a look at the # of years left on your term The rate you’re paying on your mortgage Subtract the Current Market Rate This is the closest rate to the remaining time left on your mortgage. If 2yrs are left, use today’s rate for a 2yr mortgage. Multiplied by Your Mortgage Balance And we’re done, in 4 easy steps! How much do you owe?

IN 4 SIMPLE STEPS HERE’S AN ILLUSTRATION: NOW WE HAVE THE VARIABLES, LET’S TALK NUMBERS… You have a 5 year rate of 2.64% and two years left in your term. Today, your mortgage balance sits at $375,000. You are changing jobs, moving to a new city, or just want to buy a new house, which means, you will be breaking your term & paying out your mortgage early. Today, your Lender is offering a 2 year mortgage rate at 2.19%.

THE IRD CALCULATION WE CHOOSE: — IN 4 SIMPLE STEPS — Your Current Rate Multiply by the Time Left on Your Mortgage 2.64% Subtract the Current Market Rate 2.19% Multiplied by Your Mortgage Balance $375, Years

Let’s take a closer look at how most Banks calculate INTEREST RATE DIFFERENTIAL It’s complicated… While, advertising low rates for new business, the Bank’s published interest rates are generally much higher and be can found in the fine print of the mortgage commitment. Although, it seems like you are catching a great interest rate, in actuality you are receiving the Bank’s published rate with applied discounts that reduce the amount of interest you will pay across your term to meet the rate which was advertised. Now, if you stick out your term, this generally won’t affect you, but when breaking or paying out your mortgage early, it costs you big time! In the following example, we are going to examine a mortgage with an advertised interest rate of 2.64% for 5 years, with a published interest rate of 4.74%, the discount will be used to determine the IRD penalty.

BREAKING IT DOWN: (A)-(B)=(C) (A) represents the Bank’s 5 year published rate (B) represents the current rate on the mortgage (C) represents the differential (A) 4.74% - (B) 2.64% = (C) 2.10% 1.Next, we need to find out what the Bank is charging today for a 2 year mortgage since that is how much time is left on the term we are breaking to pay out early. 2. Based on the Bank’s website, today a 2 year mortgage is being advertised with a 2.85% rate. 3.Now, that we have all variables we can calculate the Bank’s penalty for breaking a mortgage early 

The Other IRD YOUR CURRENT RATE The rate you are paying on your mortgage. SUBTRACT CURRENT MARKET RATE ( --) YOUR DISCOUNT Current rate equal to the time remaining in your term less the discount on the original rate. MULTIPLIED BY THE TIME LEFT ON THE MORTGAGE Look at the number of years left on your term. MULTIPLIED BY YOUR BALANCE What Is Owing To The Lender 2.64% - (2.84% %) x 2 x $ = $14,250.00

- = $10, Today, when we are out shopping for a car, stereo, internet provider or even the groceries, it’s only natural to look for the best prices or rates, but with the complexity of mortgages available, there are many other factors one should consider equally important like the difference between the IRDs being offered in the market today. Our Broker’s IRD Penalty: $3, A Bank’s IRD Penalty : $14, Given the intricate nature of mortgages, careful thought and comprehensive research can save you thousands of dollars OR You can put your feet up, relax and have a Broker doing the shopping for you, tailoring a mortgage that will suit your unique needs & long term financial goals, while saving you money!

THE BOTTOM LINE: With 67% of Canadian mortgages being broken halfway before their 5 year term closes, the Interest Rate Differential penalties become as important as the interest rate is. Asking about IRDS will keep you protected should you need to refinance, consolidate, or move.