My seller's mortgage matures in about 2.5 years. They understood that paying out their mortgage early would mean a payout penalty. But how much?
It's a variable rate mortgage, so not much. Three months' interest was going to be about $1,800.
As part of helping our seller clients, we always order the official payout statement from their bank. Turns out they have a fixed-rate mortgage, NOT a variable rate. The payout penalty is the LARGER of either three months' interest or the 'interest rate differential.'
The payout penalty is not an affordable $1,800, but $14,000! Their post-sale plans are now turned upside down!
Don't let your sellers commit to a sale without knowing EXACTLY what their payout penalty will be. Make sure they get an official mortgage confirmation statement from their bank to nail down the payout penalty number.
Cheers,
Barry
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