Methods for calculating a Prepayment Charge

Transcription

1 Methods for calculating a Prepayment Charge Please note this information is for discussion purposes only. The Disclosure Statement will identify which prepayment charge method applies to your mortgage and will also outline any prepayment restrictions.. Jump to: Calculating a prepayment charge with an interest rate differential (IRD) method Jump to: Calculating a prepayment charge with the 3 months interest method Jump to: Calculating a prepayment charge with the method If you have any questions about how to calculate prepayment charges or would like assistance with calculating this amount, please contact one of our customer experience specialists who will be happy to assist. Calculating a prepayment charge with an Interest Rate Differential (IRD) method OR C X D X E = F C is the amount of the mortgage being prepaid, less the amount, if any, of the unused 20% Prepayment Privilege in that year. A is the annual interest rate on your mortgage, expressed as a percentage (i.e.6.25%). B is the Government of Canada bond yield rate expressed as a percentage (i.e. 6.25%), reported as the wholesale bid side yield rate at 12:00 p.m. (Eastern Standard Time) at Toronto on the business day preceding the date your mortgage payout statement is prepared, 1 and D is the monthly interest rate expresses as a percentage (i.e %). E is the number of months remaining in the term, calculated by dividing the number of days remaining in the term by 365 and multiplying by 12. F is the Prepayment Charge 1

2 Example: Mark signed a mortgage on February 21, 2008 with a principal amount of $428,000, with a 5 year fixed term, at an annual interest rate of 6.110% He has 315 days left in his 5 year term on April 12, The bond yield rate is 1.588% The outstanding mortgage balance is $400,000, and Mark has requested to payout his mortgage. Mark made a lump sum payment of $10,000 this year. The prepayment charge is calculated as follows: Steps to calculate (C) Calculation Result Step 1 Calculate prepayment privilege amount. Step 2 Subtract any lump sum payments made during the year to get the maximum Prepayment amount allowed. Step 3 To get variable (C): Principal Amount x Prepayment Percentage Allowed $ 428,000 x 20% $85,600 Prepayment Privilege amount - Lump Sum Payments $85,600 - $10,000 $75,600 Amount being prepaid Prepayment Privilege amount allowed $400,000 - $75,600 $324,400 = (C) Steps to calculate (D) Calculation Result Step 1 Add the bond premium to the Canada bond yield rate. Step 2 Subtract the above rate from the annual interest rate of the mortgage. Step 3 divide by 12 to get the monthly interest rate. Bond yield rate (B) % % % 2.338% Annual Interest Rate total from above 6.110% % 3.772% Divide the above total by % / % = (D) * Steps to Calculate (E) Calculation Result Step 1 Calculate the months remaining in the term. (maturity date payout date) divide by (365/12) = (E) * Steps to calculate (F) Calculation Result Step 1 Calculate the C X D X E IRD Prepayment Charge $324,400 X 0.314% X Prepayment Charge = 2

3 $10, = (F) Note for purposes of this example the numbers have been rounded to 3 decimal places. Rounding of numbers will not occur when calculated by the system. If you have any questions about how to calculate prepayment charges or would like assistance with calculating this amount, please contact one of our customer experience specialists who will be happy to assist. 1 You can find the applicable wholesale bid side bond yield rates reported each business day on our website at bridgewaterbank.ca or by contacting one of our customer experience representatives directly at Select the wholesale bid side bond yield rate reported on our website for bonds with the term closest to the remaining term of your mortgage as at the expected payout date. For example: (a) if the remaining term of your mortgage is 2 years and 6 months or less, select the yield rate for 2 year bonds; (b) if the remaining term of your mortgage is greater than 2 years and 6 months (e.g. 2 years, 6 months and 1 day), then select the yield rate for 3 year bonds; (c) if the remaining term of your mortgage is 4 years and 7 months, then select the yield rate for 5 year bonds; and (d) if the remaining term of your mortgage is 1 year or less, select the yield rate for 1 year bonds. Calculating a prepayment charge with a 3 month interest method OR C X D X 3 = E C is the amount of your mortgage being prepaid, less the amount, if any, of the unused 20% Prepayment Privilege in that year A is the annual interest rate on your mortgage expressed as a percentage (i.e. 6.11%). D is the monthly interest rate expresses as a percentage (i.e %). E is the Prepayment Charge 3

4 Example: Mark signed a mortgage on February 21, 2008 with a principal amount of $428,000, with a 5 year fixed term, at an annual interest rate of 6.110% He has 315 days left in his 5 year term on April 12, The bond yield rate is 1.588% The outstanding mortgage balance is $400,000, and Mark has requested to payout his mortgage. Mark made a lump sum payment of $10,000 this year. The prepayment charge is calculated as follows: Steps to calculate (C) Calculation Result Step 1 Calculate prepayment privilege amount. Step 2 Subtract any lump sum payments made during the year to get the maximum Prepayment amount allowed. Step 3 To get variable (C): Principal Amount x Prepayment Percentage Allowed $ 428,000 x 20% $85,600 Prepayment Privilege amount - Lump Sum Payments $85,600 - $10,000 $75,600 Amount being prepaid Prepayment Privilege amount allowed $400,000 - $75,600 $324,400 = (C) Steps to calculate (D) Calculation Result Step 4 - Calculate the monthly interest rate. Annual interest (A) / 12 months 6.11% / % = (D) * Steps to calculate (E) Calculation Result Step 5 - Calculate the Prepayment Charge. C X D X 3 months $324,400 X 0.509% X 3 3 months interest Prepayment Charge = $4, = (E) Note for purposes of this example the numbers have been rounded to 3 decimal places. Rounding of numbers will not occur when calculated by the system. 4

5 Calculating a prepayment charge with a method Amount being prepaid x Percentage = Prepayment Charge A x B = C Prepayment Charges are calculated on the amount being prepaid: For payments made at any time in the 1st year of your Term where the Prepayment date is: Percentage Up to and including the 1 st Anniversary Date 3 % For payments made at any time in the 2nd year of your Term where the Prepayment date is: Percentage After the 1 st Anniversary Date, up to and including the 2 nd Anniversary Date 2 % For payments made at any time in the 3rd year of your Term where the Prepayment date is: Percentage After the 2 nd Anniversary Date, but before your Maturity Date 1 % *Payments made on the Anniversary Date will be calculated by reducing the amount being prepaid by the allowable Prepayment Privilege amount Example: Mark signed a mortgage on February 21, 2013 with a principal amount of $428,000, with a 3 year fixed term. The outstanding mortgage balance is $400,000 Mark is requesting to payout his mortgage on April 12, The prepayment charge is calculated as follows: Steps to calculate (A) Step 1 Determine the amount being prepaid The amount being prepaid for the full payout of a mortgage is the outstanding balance (A) = $400,000 5

6 Steps to calculate (B) Step 1 Determine the Percentage April 12, 2014 is after the 1 st anniversary date but before the 2nd Anniversary Date. (B) = 2% Steps to calculate (C) Step 1 Calculate the Prepayment Charge. (A) x (B) $400,000 x 2% Prepayment Charge = $8,000 = (C) If Mark decided to payout his mortgage the prepayment charge would be $8,000. If you have any questions about how to calculate prepayment charges or would like assistance with calculating this amount, please contact one of our customer experience specialists who will be happy to assist. 6