Getting Out of Mortgage - Options?

[Devils'Advocate]

I don't know if this goes in this forum or not, but what the heck....

In November I did something really, really stupid.

Knowing that interest rates were really low, I went ahead and signed on for another two years, fixed. That extends my mortgage to November 2013.

However, I am now looking to move into an apartment. Originally, I was looking at a condo, but with the condo fees the way they are in Ottawa, I'm basically paying a mortgage AND rent. So I'm pretty much looking at an apartment. So if I sell my house, I'm on the hook for a MAJOR penalty. I'm going to the bank tomorrow to find what it is, but I'm looking at nearly $10,000. Like I said, I was REALLY stupid. I was sweet-talked into taking it because of the low interest rates and the allure of saving almost a full percentage off what I was paying.

Are there any options? I doubt a buyer would be interested in assuming the mortgage given that rates have gone down even lower in the past week or so.

[ranchlandsselling]

Rent it out and try to break even?

[Frank MetaMusil]

Grow op

[albertGQ]

You going to buy the apartment? If so, you can do a port and decrease

[troutman]

Are mortgages assumable in Ontario?

[Devils'Advocate]

#1) I spoke with TD today and complained that the financial advisor shouldn't have pressured me into taking the two year fixed since I said at the outset that I wanted to sell the house. She said I could speak with the manager, but since I did it face-to-face with the person and by myself, it is just my word against hers. She could claim that I didn't say a word about wanting to sell the house. I was given the manager's phone number and will call tomorrow. I may not be the only one with the same complaint.

#2) Yes, mortgages are assumable in Ontario. My co-workers asked about that. But why would someone want to assume a mortgage of 3.2% if the banks are now giving out 2.9%?

#3) No, I don't plan on buying the apartment. Like I said in the original post, condo fees are just incredibly ridiculous here in Ottawa. In some buildings they are more than what a reasonable rent would be.

-=-=-=-=-=-

When I was on the phone with TD, they told me that my penalty would only be $2,500 - not the nearly 10 grand the internet calculator quoted me. So I'm breathing a little easier. Given that the agent said he can sell the house for $10,000 more than I was expecting, I guess I should just be happy with the up and not fret the down.

[ken0042]

#2) Yes, mortgages are assumable in Ontario. My co-workers asked about that. But why would someone want to assume a mortgage of 3.2% if the banks are now giving out 2.9%?

Does the buyer have to qualify there? How much equity do you have in your home?

When I bought my house I assumed the mortgage; and the reason why was that my credit sucked. If you have that kind of person looking at assuming the mortgage; an extra 0.3% isn't going to scare somebody who was just told the best they could get was 11.9%.

Also, if you have low equity if somebody assumes the mortgage they avoid CMHC costs. I don't have the numbers handy, but saving 2-3% off the top is better than gaining that 0.3%.

[tvp2003]

Be careful -- if the mortgage is CMHC insured, my understanding is that if a person who assumes the mortgage ends up defaulting, you could still be on the hook for any deficiency that results if the bank ends up foreclosing on the property.

[ken0042]

^^ I seem to recall that being the case when I assumed back in 2005. However that was just for the first year. So as long as you are in a market that is going up; it shouldn't be that big of a concern.

[onetwo_threefour]

No, tvp is correct but it's a province-specific thing and may or may not be true in Ontario (but I suspect it is true because the Alberta situation is unique in the exemption from liability on the personal covenant to pay for conventional mortgages to my understanding). What you understood in 2005 wasn't technically true Ken, but it was practically true. as long as a consecutive year's worth of payments were made without default it was CMHC's policy not to pursue the previous owner for deficiencies, but they had the right to if they wanted to and the one year thing was never in writing anywhere. However, I believe it was in 2006 that CMHC quietly advised that that policy was no longer in effect.

The following link has useful information for Albertans even though it is no longer being updated.To my knowledge he information he gives remains true.

http://www.findcalgary.ca/page_content-11.html

[Clarkey]

Sell the house and pay the penalty, or don't sell the house for 2 years and don't pay the penalty. I'm sure if you make a big enough stink they will decrease the penalty but is that the honorable thing to do?

Don't be a shyster and try to weasle out of a contract you signed.

[onetwo_threefour]

^So if he signs a contract with a bank that says they can sue him personally for a default on a conventional mortgage, he shouldn't challenge that even if it is contrary to the Law of Property Act? Just because something's in a contract doesn't always mean it's legitimate. The bank won't necessarily play fair with you all the time either.

Did you know that there is case law that says that a bank must give you the benefit of pre-payment privileges when calculating the penalty on an early payout of your mortgage? And did you know that there are banks who still won't do it unless you either specifically request them to, or even worse, insist that you make two payments to take advantage of your pre-payment options, one for the amount of the allowed pre-payment, then a second for the balance with a recalculated penalty.

I think you're entitled in this case to investigate any options for reducing your costs and liability without worrying about honour. The bank doesn't look at it as such, they see a cold hard risk/reward calculation and act accordingly.

[onetwo_threefour]

Not to beat a dead horse, but for those who think you should just shut up and pay your penalty, here's a cautionary tale that is taking place right now on one of my files.

Our firm's policy is that, if a client requests it, we will do their mortgage payout in two payments for banks like TD who refuse to give the client the benefit of the prepayment privileges when calculating the penalty. It's a pain in the ass and it causes the client's funds to be delayed as we have to order a second payout statement after making the initial prepayment (usually 15%), but it can potentially save the client hundreds or even thousands of dollars, so if we notice an unusually large penalty we will tend to suggest it to clients paying out their mortgage.

Previously, despite this being a pain, it was a relatively simple process and TD would take their one cheque, issue a new payout statement with the lowered penalty, then take the second, cheque, charging the client interest for the duration of the delay. This time, we ordered our initial payout and asked TD to confirm the amount available for penalty-free paydown and were advised that because we had ordered a payout statement, the mortgage was no longer eligible for pre-paymnet privileges. Not only is TD defying the case law out there that says they have to give the client the benefit of the pre-payment privileges when they calculate the payout, they are now trying to shut down our method for dealing with their refusal, which I should not have to do in the first place. I am now forced to waste my time cancelling the initial payout request then doing the pre-payment, then order a new payout, then make the second payout. All this because TD refuse to acknowledge that they are obliged to be fair about the pre-payment privilege and knows that nobody is goig to take them to Court over the difference in the penalty because it's not worth it.

The moral of the story is, I don't consider it underhanded or unfair when people try to find out if there is anyway to avoid or reduce penalties, because you can be sure that the bank is trying to maximize their profits and fairness has nothing to do with their thought processes.