How to Terminate a Mortgage in Canada

Terminating a mortgage in Canada is not hard, but could be costly.

Mortgage termination refers to the ending of a mortgage contract in any way. This can be a standard cancellation, such as a refinance or sale, or a more infrequent cancellation, such as a foreclosure or short sale. In Canada, the rules and implications of mortgage termination are very similar. In fact, many of the American banks who extend mortgages to U.S. consumers also extend loans to Canadian consumers. However, before you terminate your mortgage contract in Canada, make sure you know the consequences.

Things You'll Need

• Mortgage paperwork
• Income documents (pay stubs, W-2s)
• Credit report

Instructions

1. Pull out all the paperwork associated with your original mortgage contract. Most important is the mortgage note, sometimes called a promissory note in Canada. This document details the terms set forth in the contract, and the penalties for not abiding by those terms.

2. Look for the following phrase: "prepayment penalty." This is a fee charged on some mortgages in both Canada and the U.S. Some lenders, in an effort to retain more mortgage business, will place a mandatory window on a mortgage (between one and five years) during which a customer cannot refinance the loan. If a customer refinances in this window a fee is charged, and it is usually substantial (often a percentage of the total loan amount).

3. Pull your credit report. This will help if you are thinking about terminating your existing mortgage in order to refinance with another lender. In Canada, you can get a free copy of your credit report from one of the three main bureaus (TransUnion, Experian or Equifax), but you must get it via post. You must pay for an online copy.

4. Contact your lender if you are struggling with payments. You have two foreclosure-avoidance options to terminate your mortgage in Canada: deed-in-lieu foreclosure and short sale. A deed-in-lieu is when you simply surrender the deed to your home, terminate the mortgage and vacate the property. This isn't a full foreclosure since the lender agrees to forgive the portion of the loan he cannot recoup. A short sale is when you find a buyer and you and your lender agree to sell the property for less than it is worth. The remaining mortgage balance is forgiven.

5. Sell your property to terminate your mortgage legitimately. Most mortgage companies will not penalize you for a home sale (even if there is a prepayment penalty). Make sure to find Canadian real estate trends prior to putting your home on the market.

References

• Ellen Roseman: Mortgage Penalty Can Be a Shocker
• Foreclosure Canada: FAQs

Resources

• Experian Canada