mortgage payout penalty when commercial property sold.

[meggieli]

Hi,



I have one commercial apartment sold, and payout statement from bank states big amount of mortgage earlier exit penalty instead of three months interest penalty. I was told the penalty is based on interest at maturity, which is much bigger than I thought to be..

Can someone tell this is normal case for commercial mortgage? thanks in advance!



Regards,

Meggie

 

[Thomas Beyer]

Any mortgage comes with terms. Understand them. They are similar in both commercial and residential, but subtle differences exists. The payout penalty is usually the interest differential between the risk free bond to the current mortgage, to maturity. So if the five year mortgage for $1M has a 4% interest rate and the risk free bond is 1.2% for the three remaining years then you pay the difference, i.e. 2.8% times $1M times two years ie $84,000. This is also called a prepayment penalty in Canada or a defeasance fee in the US.