The amount owed is basically the amount of interest
"lost by the Bank" from replacing the mortgage. The calculation
looks at the difference between the entire amount of interest left to pay
on ones current term based on current rate versus the current posted
rate (adjusted for the same discounts) for a term with a similar
length.
An example if one has:
• $300,000 remaining
and
• current interest rate is 2.5% (after a discount of 1%)
•
with 24 months left in the contract
• then the bank would look at the
current rate for a 2 year mortgage (for TD today that amount is 2.94% less
the 1% discount).
The IRD formula
is:
= Amount remaining x (current rate - (posted rate
less discount)) x (remaining months / year)
= $300,000 x (2.5% -
(2.94% - 1%)) x (24 / 12)
= $300,000 x 0.56% x 2
=
$3,360
The 3 month formula
is:
= Amount remaining x current rate / year x 3
months
=$300,000 x 2.5% / 12 x 3
= $1,875
Most likely
it will be the IRD formula as it’s the higher amount.
Need
to know:
• How much is remaining?
• What Interest Rate is being
charged and did one receive any discounts
• How many months are
remaining
• What is the posted rate for that term (adjust for the
same discount received)
In addition, there is typically a fee of
~$300 on top of this for discharging a mortgage.