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Let's say I want to prepay my entire mortgage and I have 22 years left in my 25 years mortgage.

In this case the bank imposes a penalty which is the yearly interest for three months. My question is, will this penalty apply on the entire 300,000$ mortgage let's say or the 60,000$ I would have paid in this 5 years cycle?

To put it in other words, the bank says that I need to do prepaid_amount * yearly_interest / 4. So the prepaid amount is the 60,000$ or the 300,000$?

P.S. The division by 4 comes from the fact that I'm penalized with the yearly_interest for three months.

  • I chose not to pay-off a mortgage; Essentially I am getting money at 4 % ( the mort. rate) which I used in the stock market. Hopefully I keep making more than a 4 % stock return and got to deduct mortgage interest ( until this year ). from income tax. The money you don't pay on the mortgage could also used to buy a car and avoid a high rate car loan. – blacksmith37 Apr 5 at 1:02
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    What do you mean by "this 5 years cycle" and just curious, but which country are you in? – Hart CO Apr 5 at 1:23
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    This is entirely dependent on your mortgage conditions. – void_ptr Apr 5 at 2:09

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