Interest Rate Differential

Definition

• The penalty charged to a homeowner if he or she decides to pay off their mortgage before the end of their mortgage term. When breaking a closed fixed-rate mortgage, a lender will charge the borrower the greater of three months interest or an interest rate differential (IRD). An IRD is calculated using the amount the homeowner has paid into the mortgage term and the difference between the homeowner's original interest rate and the rate the lender charges at present. Each lender calculates penalties differently, and some lenders don't even allow a mortgage to be broken unless of a bona fide sale.

Acronyms
IRD

Alternate Spellings
pre-payment penalty, mortgage penalty, penalty

Related Terms and Acronyms

• Closed Mortgage — Definition, Important,
  • Closed mortgages involve a strict repayment schedule of a specific amount with optional limited lump sum payments and payment increases.
• Interest Rate (IR) — Acronym, Very Important,
  • The rate a lender charges an individual to borrow money.
• Lump Sum Payment — Definition,
  • One-time single-sum payment or payout.
  • An extra payment made to reduce a loan.
• Mortgage (mtg) — Abbreviation, Important,
  • A mortgage is a contract stipulating a specific real property, typically a residence or building, as collateral for a loan. The mortgage incurs a rate of interest that varies according to term and other features.
• Mortgage Interest Rate Differential (MIRD) — Acronym,
• Mortgage Rate — Definition, Very Important,
  • The interest rate on a mortgage loan.
  ➥ You can compare mortgage rates using this website by clicking 'Rates' above.
• Open Mortgage — Definition, Important,
  • A mortgage that can be paid off prior to maturity without penalty.
• Penalty — Definition,
  • In mortgage terms, a penalty is a set rate or length of time the penalty will be charged based on the remaining loan amount. The penalty is usually three months interest or interest rate differential.
• Pre-payment — Definition,
  • Applying additional payments towards the balance of a mortgage loan.
• Pre-payment Clause — Definition,
  • A clause that stipulates the amount of principal a borrower may prepay ahead of schedule without penalty as well as the prepayment penalty for larger prepayments.
• Pre-payment Penalty — Definition,
  • A lender's charge to the borrower for paying off the loan before the end of the term.
• Refinance — Definition,
  • To arrange a new loan for an increased amount or better terms whereby the old loan is paid off from the proceeds of the new loan.