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Old 10-14-2014, 12:17 PM   #1
Mortgage Made Easy
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Default Ouch! Edmonton Couple ‘Devastated’ By $17,000 Mortgage Penalty

One disadvantage of having your mortgage with a traditional bank is that typically their penalties for breaking your mortgage before the term is up are much larger than those you could expect from other lenders.

This article from CBC is another example of an extreme but not uncommon situation of mortgage borrowers who didn't understand what they were getting into when they signed the papers with TD.

Has this happened to you?

Is government intervention the solution... to standardize how penalties are calculated?

Call or PM us to learn whether you have a mortgage like this or to learn more!


The above is just another great example for "Why using a Mortgage Professional" when shopping for a mortgage is the best idea.

Things to watch out for concerning your possible mortgage penalty:

1) Posted Rate w/ Discount Rate VS Preferred Rates
2) 3 Months Interest vs IRD Penalty

Both of these are discussed in detail in this article along with example calculations.
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Last edited by Mortgage Made Easy; 10-14-2014 at 12:32 PM.
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Old 10-14-2014, 01:02 PM   #2
bizaro86
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I've paid mortgage penalties in the past, but only 3 months interest due to interest rates declining.

Do you offer fixed rate mortgages that only charge a 3 months interest penalty? That seems pretty unlikely to me since you could just refinance if rates dropped, but got the benefit of the fixed rate if they rose.
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Old 10-14-2014, 05:18 PM   #3
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We almost certainly won't renew for this very reason. Luckily (?) we can port our mortgage to the new house that we bought, so we end up only being out a couple of hundred bucks.

The buyout would have been over $10,000.
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Old 10-14-2014, 05:21 PM   #4
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Quote:
Originally Posted by bizaro86 View Post
I've paid mortgage penalties in the past, but only 3 months interest due to interest rates declining.

Do you offer fixed rate mortgages that only charge a 3 months interest penalty? That seems pretty unlikely to me since you could just refinance if rates dropped, but got the benefit of the fixed rate if they rose.
No, there is not a fixed rate mortgage that charges ONLY 3 month penalties. The clause with every lender is 3 month interest penalty or IRD whichever is greater!

With that said, we can mitigate most of our clients from having an IRD penalty by discussing and planning for the right mortgage product (rate included).

One way to ensure a 3 month interest penalty is to go with a variable / adjustable rate mortgage. The catch is that not everyone can qualify for a variable / adjustable rate mortgage.

Ultimately it comes down to discussing a clients needs and some future planning to make sure options are presented, not just a rate! As we can see.. NOT ALL RATES ARE THE SAME (even if the same percentage)!
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Old 10-14-2014, 05:25 PM   #5
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Quote:
Originally Posted by You Need a Thneed View Post
We almost certainly won't renew for this very reason. Luckily (?) we can port our mortgage to the new house that we bought, so we end up only being out a couple of hundred bucks.

The buyout would have been over $10,000.
That is great that the penalty is not going to hurt you.. porting is always a great feature! Are you adding additional funds to your mortgage (if the purchase is larger)? Hopefully you can maintain the balance of the term and just add new funds to keep your renewal on track.

Keep in mind that when your renewal is up... to check and see what other options you may have!

It is not pretty when LIFE happens and your hands end up being tied as to what you can and cannot do. Choice is always nice...
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Old 10-17-2014, 04:06 PM   #6
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In regards to IRD penalties, and how to claw back some of that cash:

When buying out your mortgage in it's entirety, make sure the bank is utilizing your 'Prepayment Privilege' that is written into your mortgage contract. Typically, you're allowed to pay off 15% of the original mortage principal per year, without penalty.

On a $450k original mortage principal, 15% equals $67,500. That's $67,500 that should be exempt from the banks Interest Rate Differential penalty, potentially saving you thousands. But it's not exempt, and they will penalize you, because they've written a loophole into the fineprint of your contract. It'll likely say something along the lines of "Prepayment privilege amount can not be paid on the same day as paying out the full mortgage amount" (but in bank speak). They write this rule in because most people don't have $67,500 lying around to utilize the privilege.... that is, until they sell that home for a profit, and only then do they have that kind of cash, the day they intend on closing the mortgage.

The way around it is very simple - Lets say you sell your $450k home, and the close date is Oct 29, this being the day your lawyer is to release the funds to your bank. What you have to do, is ask your lawyer to release the funds in 2 separate payments to the bank... 1 payment of $67,500 on Oct 29 (Prepayment Privilege), and 1 payment for $(remaining balance) on Oct 30. This separates the 'Prepayment Privilege' and the Mortgage Buyout Date by 1 day.

You will get penalized by the bank for paying the funds a day late though. In my case, they penalized me $21.20 for doing this. It saved me over $1900 in IRD penalties though.
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Old 10-18-2014, 11:31 PM   #7
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This got me thinking...if my mortgage is up for renewal on Feb 1 next year, when's the earliest I should consider renewing it? No sooner than Nov 1 I'm guessing?
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Old 10-19-2014, 08:41 AM   #8
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This got me thinking...if my mortgage is up for renewal on Feb 1 next year, when's the earliest I should consider renewing it? No sooner than Nov 1 I'm guessing?

We start our renewal process about 6 months in advance. For new clients it just means we are able to understand needs and goals to discuss options well in advance.

Plus we do have lenders we can hold rates with for 6 months... Granted the rates are slightly higher than a 120 day rate protection lender... But in an uncertain market we can always protect from worst case... Higher rates.

With that said the ideal or sweet spot for starting a renewal is prior to 120 days of your renewal. This allows us to be ready to protect your renewal as soon as there is an indication of rate changes.

We will continually monitor changes and lenders during the renewal process to provide optimum choices.

NOTE: Now would be the time to start the process.

Hope that helps ... And feel free to call or PM. ~Tim
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Last edited by Mortgage Made Easy; 10-29-2014 at 04:17 PM.
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Old 10-29-2014, 04:11 PM   #9
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Hi there, I believe our mortgage is up in May. Last year we started the process too late and the current mortgage company we are with was not very helpful because we tried to transfer to a different lender. Well, long story short we would like to renew in the spring and would like some help in the process from a professional.

What are your suggestions for finding someone who will truly get you the best deal without trying to screw you over? A mortgage is a major investment and something that many don't want to waste their money on. Anyway, any advice for finding the best mortgage broker for us would be wonderful.

thanks!
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Old 10-29-2014, 04:12 PM   #10
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Quote:
Originally Posted by foshizzle11 View Post
Hi there, I believe our mortgage is up in May. Last year we started the process too late and the current mortgage company we are with was not very helpful because we tried to transfer to a different lender. Well, long story short we would like to renew in the spring and would like some help in the process from a professional.

What are your suggestions for finding someone who will truly get you the best deal without trying to screw you over? A mortgage is a major investment and something that many don't want to waste their money on. Anyway, any advice for finding the best mortgage broker for us would be wonderful.

thanks!
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Old 10-30-2014, 08:16 PM   #11
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So there's no fixed mortgage that offers nothing less than ird?
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Old 10-30-2014, 08:26 PM   #12
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So there's no fixed mortgage that offers nothing less than ird?

Yes there is fixed rates that offer less than IRD.

Each lender is different and banks have a more complicated calculation which can create the larger penalties as this article did.

As mortgage brokers we do explain the different options for penalties if you take fixed, variable or no frill / restricted rates... For each lender.

There are numerous options...

This is why we do try to explain that not one rate fits all. Sometimes a rate that is 0.10% higher can save you more money if LIFE happens.

Sorry for the long winded reply. I could go on and on. Lol
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