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Friday, February 13, 2009

Mortgage Prepayment Penalty

Compensation Amounts

If you wish to make a prepayment of more than 15% of the original borrowed amount in any single year, there will be a compensation charge. The compensation charge is equal to the greater of Three Months' Interest Cost, or an Interest Rate Differential Amount.

Here is how you can estimate the Three Months' Interest Cost and the Interest Rate Differential Amount. We use a precise formula that credits you for the amount of principal you would have paid off each month. You can obtain the exact amount by contacting your branch.

1. To estimate the Three Months' Interest Costs:

Step 1: ________ (A) amount you want to prepay
Step 2: ________ (B) the Interest Rate under your Mortgage expressed as a decimal (for example, 6.75% = .0675)
Step 3: ________ (C) A x B = C
Step 4: ________ (D) C ÷ 4 = D, D is your estimated Three Months' Interest Costs

2. To estimate the Interest Rate Differential Amount:

Step 1: ________ (A) the current interest rate under your Mortgage expressed as a decimal (for example, 6.75% = .0675)
Step 2: ________ (B) the current interest rate that we can now charge for a mortgage term offered by us with the term closest to your remaining term. The interest rate will be our posted interest rate for the term minus the most recent discount you received
Step 3: ________ (C) A - B = C, which is the difference between your current interest rate and the interest rate in B above (write C as a decimal)
Step 4: ________ (D) amount you want to prepay
Step 5: ________ (E) number of months for the remaining term of your Mortgage
Step 6: ________ (F) (C x D x E) ÷ 12 = F, F is your estimated Interest Rate Differential Amount