Is there ever a good time to break my closed mortgage and pay the prepayment penalties?
There are two rates on a mortgage - the one you get going in and the one you get going out! Major banks offer clients a discount off of their posted rate, or sometimes they refer to the lower rate as a special off the posted rate. The reason for this is they will always use the posted rate when calculating the penalty should you look to break your term.
Many Canadians have benefitted over the past several years of breaking their closed mortgages and opting for a new mortgage with lower rates (nearly three-quarters of all 5-year closed mortgages in Canada are broken by the end of the 3rd year)! This is such a popular strategy in the mortgage industry that it even has been given a name - the 'Break and Run' strategy. This strategy assumes changing to the lower rate will more than offset all of the prepayment penalty over the course of the next five years.
However, the benefits are dictated by how your present lender calculates the prepayment penalty as well as the length of your mortgage term remaining. Check with a licensed mortgage professional to see if this strategy is appropriate to your situation and if they can find any additional incentives or deals that reimburse some or all of your prepayment penalties. Often your penalties can be minimized when your licensed mortgage professional finds a new lender anxious for your business. Also, if you switch and keep your mortgage amount the same, there are usually no legal fees involved - just a simple 'no fee' switch to the new lender.