Charge 6-12 month interest penalties, instead of three months
Prevent early termination altogether.
Before choosing your next mortgage, ask your lender or broker for a written list of early termination charges, as well as the lender’s penalty formula.
The fairest lenders impose only a discounted penalty and a simple discharge fee. If you’re going to deal with a lender that charges you through the nose to break early, you better be confident that you won’t need to. And, your interest rate better be well below all other comparable lenders. (This assumes you’re well qualified because your options may be limited if you’re not.)
When accepting harsher termination charges in exchange for a low rate, remember that it’s not always possible to know where life will lead you 3-4 years down the road (that’s when most folks break a 5-year mortgage).
People terminate their mortgage before maturity for numerous reasons, including:
equity take outs (People use these for debt consolidation, buying other properties, investing, educational borrowing, renovations, business start-up, etc. Many lenders let you tack on extra money to your mortgage without a penalty. Some don’t. Others charge no penalty but bend you over on the interest rate.)
new marriage (e.g., consolidating residences)
upsizing or downsizing (if a port isn’t advisable)