# $40,000 takeout on the MCAP mortgage — cost model, 23 Oct 2026

## Headline
Taking $40k out by **breaking and refinancing the MCAP first charge mid-term is the most expensive way to get it** unless very little term remains. The penalty alone can be **12%–65% of the $40,000** borrowed. A HELOC or a second charge costs a fraction of that.

## What MCAP will charge to break the term
MCAP pays the **greater of** three months' interest or the **Interest Rate Differential (IRD)** on a fixed-rate mortgage (standard for Canadian fixed terms; MCAP's own prepayment-charge page sets this out, and MCAP's IRD uses the posted rate for the remaining term).

Computed on plausible balances — replace with the real balance/rate from the last MCAP statement. Comparison rate used: **4.64%**, the current best uninsurable (refinance-class) 5-year fixed, WOWA/Ratehub 22 Oct 2026:

| Balance | Contract rate | Comparison rate | 3 months' interest | IRD | **Penalty = greater** |
|---|---|---|---|---|---|
| $350,000 | 6.19% | 4.64% | $5,416 | $16,275 | **$16,275** |
| $350,000 | 5.50% | 4.64% | $4,812 | $9,030 | **$9,030** |
| $450,000 | 6.19% | 4.64% | $6,964 | $20,925 | **$20,925** |
| $450,000 | 5.50% | 4.64% | $6,188 | $11,610 | **$11,610** |
| $550,000 | 6.19% | 4.64% | $8,511 | $25,575 | **$25,575** |
| $550,000 | 5.50% | 4.64% | $7,562 | $14,190 | **$14,190** |
| $450,000 | 4.90% | 4.64% | $5,512 | $3,510 | **$5,512** |

(IRD = balance × (contract rate − comparison rate) × months remaining ÷ 12, 36 months left. Note the third row group: if the contract rate is already near market, the penalty collapses to three months' interest — which is why the contract rate on the statement decides everything.)

## Plus hard costs in Ontario
Legal/registration/discharge on a refinance: **$1,500–$2,500** all-in (lender legal + your own lawyer + discharge of the old charge). Appraisal, if MCAP requires one: **$300–$400**. Title insurance ~$250–$350.

**So a mid-term refinance to extract $40k is realistically $7,000–$29,000 in friction before a dollar of interest.** At a 6.19% contract rate and three years left, that is *more than half of what you're borrowing*.

## The rate arithmetic that kills the refinance case
Refinancing only makes sense if it also cuts the rate on the whole balance:
- $450,000 from 5.50% → 4.64%: saves **$3,870/yr**. Penalty $11,610 + $2,000 costs = $13,610 → **3.5 years to break even**, on a term with **3 years left**. It never pays back inside the term, and it resets the whole balance into a fresh term to get there. If the contract rate is already ~4.90%, the penalty is only $5,512 and the break-even falls to ~1.7 years — still not free, but a different conversation.

## Cheaper ways to get ~$40k, ranked
| Route | Rate (Oct 2026) | Annual interest on $40k | Friction | Notes |
|---|---|---|---|---|
| **HELOC / readvanceable line** (MCAP Fusion or another lender in 2nd) | prime + 0.5% ≈ **4.95%** | **~$1,980** | appraisal possibly $300, legal ~$500–$800 for a 2nd charge | No penalty to touch the existing term. Best structure if the home has equity. |
| **Unsecured line of credit** | prime + 3% ≈ **7.45%** | **~$2,980** | none | No lien, no legal fees. Fastest. |
| **Second mortgage / private** | 8–12% + 1–2% fee | **$3,200–$4,800** | lender + legal fee 1–2% | Only if there is no equity room for a HELOC. |
| **Break & refinance MCAP** | 4.34–4.84% new rate | ~$1,740–$1,940 + **$7,000–$29,000 penalty/fees** | heavy | Worst option unless the term is nearly up. |

Rate context, verified 23 Oct 2026 (WOWA and Ratehub tables, updated 22 Oct 2026): prime **4.45%** (Ratehub lists a prime − 0.55% = 3.90% variable product, which pins prime at 4.45%); best 5-year fixed **4.34%** insured, **4.64–4.84%** uninsurable/refinance; best 3-year fixed 4.29%; deepest 5-year variable 3.25%. Big-6 2-year fixed 4.39%.
**Rates are moving up, not down:** Ratehub's own 22 Oct 2026 note — "three- and five-year government bond yields surged this week in response to September's **3.1% inflation** reading. Lenders have repeatedly raised their fixed mortgage rates… investors expect the Bank of Canada to raise its overnight rate on **October 28**." If any draw is going to be variable or HELOC-based, the BoC date on 28 Oct is five days out — that argues for locking a rate this week rather than after.

## The question that changes everything
**How many months are left on the current MCAP term?**
- If **under ~12 months**: wait. Break cost approaches three months' interest, and refinancing at renewal is nearly free — and planning the takeout *at renewal* is the correct structure.
- If **24–36+ months**: do not break it. Use a HELOC in second position now, and roll it into the first charge at renewal.

## MCAP asks, in one call (1-800-265-2624, Mon–Fri 8am–8pm ET, or service@mcap.com)
1. "Current balance, current contract rate, maturity date, and the term remaining in months."
2. "Give me the **prepayment charge in writing today** — three months' interest versus IRD, and the comparison rate you used."
3. "Is my mortgage a **collateral charge**? If so, can I register a HELOC or second charge behind it without discharging it?" (A collateral charge can allow a readvance — this is the cheap path.)
4. "What are your **legal, discharge and appraisal** costs for a refinance, and is there a reduced-cost 'blend and extend' or switch product?"
5. "What is your current best **5-year fixed and variable** rate for my loan-to-value — and what would the new payment be on $40,000 more?"

## Also relevant: the $60,000 question
The task's own sub-item says to confirm **where the $60,000 goes and the repayment terms** while the task title says $40,000. That $20,000 gap has to be settled before any application — the size of the takeout changes which route is rational (a $40k HELOC draw is routine; $60k may push loan-to-value to where a HELOC isn't approved).

## Blocker
Three numbers from the MCAP statement/portal: **current balance, contract rate, maturity date**. With those the penalty is exact instead of a table, and the recommendation becomes a single line.

## Files
- This model: `deliverables/2026-10-23/mcap_takeout_cost_model.md`