Pre-Payment / Penalty Calculators 

Penalty Calculators are all in the news when it comes to mortgages. Most people don't understand them and the penalty can differ enormously from one lender to another. I can't stress HOW important understanding what happens and the COST IF you break your mortgage during your contracted term. 

 

The most popular mortgage product is the 5 year fixed term.

Did you know that more than half of the mortgage holders break their mortgage five years term? Many reasons such as divorce, unexpected job loss, having to move, pay off debts, bankruptcy or consumer proposals.  

 

The On-line calculators I have linked to will give borrowers an option to calculate the penalty before they sign on the dotted line. 

 

If you are with one of the BIG 6 Banks, you need to know the DISCOUNT that was offered to you when you first got your mortgage to calculate your penalty. Big banks have Posted Rates as you can see on their rate section of the bank sites. Posted rates as of 01/15/2015 with banks today is 4.94%. If they are discounting your rate to 2.94%, your discount is 2%

 

A couple of tips to remember:

  • Banks charge 3-month interest penalties based on posted rates, instead of your actual rate

  • “reinvestment fees” of up to $1000 on top of your penalty and discharge fees

  • interest rate differential can be based on posted rates (common among the Big 6 banks) instead of cheaper discount rates

  • IRD charges can be based on bond yields (which can sometimes be more expensive than even posted rate penalties)

  • IRD penalties to variable-rate mortgages and terms greater than 5 years.

  • Some lenders charge 6-12 month interest penalties, instead of three months interest

  • Not allowed to break mortgage unless bonafide sale - the NO Frills and Low Rate programs!

  • If your with a credit union, they don't seem to put their penalty calculators in obvious, online areas. make sure you get the calculation formula in writing. Usually in the standard mortgage terms contract.

  • When rates go down, your penalties go UP!

 

Getting "Swayed" by a banks "bait and switch" rate deal? Careful and GET IT IN WRITING. Even have a mortgage broker (unbiased opinion) review it BEFORE SIGNING.

 

Big bank says they will cover all their penalties and fees only to find out later that the penalties were BUILT into their new mortgage...so you did pay for it, not the bank. Banks will capitalize a certain amount for you, but they DON'T outright pay for you it. Legal fees can be covered by banks.

 

 

It's always a good idea to use a mortgage expert who is able to research the mortgage programs.  Asking the right questions about your family future plans will help gauge which mortgage program is better suited for you. Getting a 2.89% rate today vs a 2.99% might be a potential cost of THOUSANDS of dollars later. Is it really worth it?

 

IN THE NEWS

 

http://www.cbc.ca/news/canada/edmonton/td-bank-client-devastated-by-17-000-mortgage-penalty-1.2790108

 

http://www.cbc.ca/news/canada/ottawa/scotiabank-hit-injured-soldier-with-7k-mortgage-penalty-1.2684694

 

http://www.princegeorgecitizen.com/news/local-news/class-action-over-mortgage-penalty-wins-certification-1.1202460

 

http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/ten-questions-to-help-you-avoid-mortgage-penalty-shock/article4545693/