What is the maximum penalty a lender can charge for early mortgage payout after 5 years?

When it comes to the maximum penalty a lender can charge for an early mortgage payout after five years, the most accurate choice is three months of interest. This penalty structure is governed by the regulations imposed under the interest act in Canada, which provides guidelines for mortgage penalties.

After a five-year term, lenders are typically limited to charging a penalty that is equivalent to the lesser of three months' interest or the interest rate differential (IRD). However, for many fixed-rate mortgages, especially those with an open term, it is common practice for lenders to impose a penalty of three months' interest as a maximum for early payout. This provides borrowers with a degree of certainty while enabling lenders to manage their financial exposure.

The other options would not accurately reflect the regulations and common practices associated with early mortgage payout penalties after five years, as they either underestimate the typical penalty charges or incorrectly suggest that no penalty applies after a five-year term.