On November 26, 2010, we reported that a good source told us the govt would not follow through on their promise to standardize mortgage penalties until this spring, at the earliest.
On December 15, 2010, we also reported that discounted Fixed mortgage rates were going up but Posted mortgage rates were staying the same… we stated that your mortgage penalty would not decrease as it normally does when rates go up.
We received some inquires about this article. Questions like ‘shouldn’t my penalty go down if rates are going up?’ and ‘how could a mortgage penalty be more expensive if the Bank’s didn’t increase their posted rate?’
Okay, here’s my shocker statements…. A $200,000 mortgage taken in December 2008 will cost you $16,800 to get out of today…. but 12 years ago it would have cost you approximately $8,340 and even today, it should only cost $11,640. Got your attention? Please read the entire report to better understand.
WE TOOK THE MYSTERY OUT OF HOW THE PENALTIES ARE CALCULATED
We decided this needed a more detailed explanation….but a strange thing happened when we started to answer these questions… We made a startling discovery….we caution you, the results could get your blood boiling if you had to pay a penalty in the past 2 years….We found that Banks have shrunk or reduced the spreads between their Posted and Discounted rates over the past few years….and this has had a huge impact on Interest Rate Differential (IRD) penalty calculations. I’ll explain what this means in more detail further in this article.
(hey, quick facts… most popular mortgage product is a 5 yr fixed.. most profitable is a 5 yr fixed… on average, a mortgage if refinanced or someone moves every 3 years… mortgage penalties affect more people than you think)
FIRST, YOU NEED TO UNDERSTAND THE HISTORY OF MORTGAGE PENALTIES
To better explain the above statements, I need to explain why mortgage penalties exist at all. To do this we need to go back in time… in the 1990′s, mortgage penalties were capped at 3 months interest (for all CMHC insured mortgages)…This was a policy that CMHC had implemented. Most banks just used that same formula for non-cmhc insured mortgages….some Banks still had an IRD penalty clause in their standard charge terms but the formula for calculating this was very different from today.
Back then, a few things were different… Discounted rates on 5 year terms were only 0.50% to 0.75% off Bank Posted rates… if you had 3 years remaining in your 5 year term, the banker went to the rate sheet, looked at their 3 year POSTED fixed rate and if your rate was higher, then they calculated the IRD (usually, a nominal amount because the banker only had posted rates to compare with). If your rate was lower, then the banker could impose a 3 month interest penalty or NO PENALTY.. that’s right, no penalty. It was up to the banker’s discretion. (Mr. Potter wasn’t that happy back then…but things were about to change)
But I’m getting ahead of myself. The reason or justification for having an IRD penalty in the first place is to compensate the Bank for any loss that they may incur when re-lending the funds…
HERE’S A DIRECT QUOTE FROM THE TD CANADA TRUST WEBSITE:
“The IRD amount is calculated on the amount being prepaid using an interest rate equal to the difference between your existing mortgage interest rate and the interest rate that we can now charge when re-lending the funds for the remaining term of the mortgage.”
Did anybody get that? The IRD penalty is there to compensate the Bank for any loss due to a mortgage being paid out and then to have to lend funds out again for the remaining term at a rate that is less than what they had in the contract… I don’t think anyone would have a problem with that. After all, it is a business and they can’t be expected to take a loss. But somewhere along the line, this reason got lost or forgotten. The current IRD penalty calculation is OVER-CHARGING borrowers. And the Bank’s have shrunk their spread between posted and discounted rates causing borrowers to pay record mortgage penalties in the $10k, $15k and $20k range and higher! (scroll to the top to see if Mr. Potter is smiling)
Let’s fast forward to the end of 1999. CMHC quietly removed the 3 month interest penalty cap from their policy…probably because of competition from Genworth Financial Mortgage Insurance (formerly GE Mortgage Insurance and a competitor to CMHC). Banks slowly changed their own policies to allow for IRD to be charged.. and today we have Bank’s using an unfair penalty calculation that does more than cover any potential loss.. it makes the borrower pay an unfair amount..
MORTGAGE PENALTY CALCULATIONS TODAY
Let’s look at the numbers.. Let’s use a $200,000 mortgage that was taken out in December 2008 at 5.54% for a 5 year fixed term… The Posted rate was 6.95% giving us a discount of 1.41% off the 5 year fixed rate. Today’s 3 year posted rate is 4.15%. (we’re using TD Canada Trust in this example because they have a clear explanation and formula on prepayment penalties on their website…but this formula is similar to what the other Big Six banks are using.)
Using the IRD formula from their website the penalty would be approximately $16,800. That’s equal to 18 months of interest!! Here’s what’s happening. The Banks are using your original discount given at the time of the mortgage. They take that discount, in this case, 1.41%, and subtract that from their posted 3 year fixed rated (4.15% – 1.41% = 2.74%). The problem is that NONE of the Big Six Banks are advertising a 1.41% discount off their 3 year rate… The best advertised rate that we could find with TD Canada Trust is through their Broker channel. That rate is 3.60%. So why are they using 2.74% to calculate your IRD penalty?
But what’s more disturbing is that this formula has gone unchecked by Govt’s, regulators and watchdogs for almost a decade. Wait, it gets worse… we all know that mortgage rates have been at record lows for the past 18 months. This alone would cost borrowers even more to get out of their mortgage. The Banks don’t seem content with that… They have shrunk their spread on shorter term mortgages making these penalties higher than ever… (I can almost hear Mr. Potter laughing)
In 2007, TD had a posted 3 year fixed rate of 7.35% and a discounted rate of 6.05%…that’s a 1.30% discount. Today, the posted 3 year rate is 4.15% and the discounted rate is 3.60%…. a discount of just 0.55%. That reduced posted rate is costing borrowers dearly. And to put this in a better context, if the posted 3 year fixed rate was 1.30% higher than the discounted rate today, then the penalty would be approximately $11,640 instead of $16,800 . (as an aside, if this was 1998, your penalty would cost $8,340 because the Bank only used the Posted Rated when calculating the penalty.)
End result is HIGHER MORTGAGE PENALTIES for borrowers, MORE PROFIT FOR BANKS.
We need to get more attention on this subject. These penalties are unfair, unjust and the logic isn’t adding up to the original reason for having mortgage penalties to begin with. Hoping this article explains the HOW penalties are calculated…. I’ll let you figure out the WHY they are calculated this way… I think it’s quite obvious who is winning and who is losing. (what’s that saying? The House Always Wins.)
January 5, 2011 at 2:07 pm
I think this is a great article that explains what is really going on here. The fact of the matter is most people are ignorant to prepayment penalties and because in most instances they are stuck with having to pay them (in the case of property sales) the banks just take advantage. The more alarming thing is the assumption that all these calculations are the same between major lenders. I have seen some of these lenders use the lowest posted rate regardless of term left on the mortgage to calculate an even higher prepayment penalty. I urge anyone being faced with an outrageous prepayment penalty to review your documents at the signing of the mortgage and do the calculation based on how it is outlined to be calculated from the document you signed. Some of these lenders have changed their internal practices and hope you won’t notice or question why it differs from the stated method of calculation.
January 5, 2011 at 4:11 pm
The challenge is to make people aware… not an easy thing to do… Hopefully, this will draw some attention to the problem…
Thanks Brad.
January 8, 2011 at 2:29 pm
Although I agree on creating transparency and standardization for the calculation of penalties, the banks are getting a bad rap for this. A mortgage is a contract.
People would be up in arms if they had a 5 year GIC at 5% and a bank broke their contact and then offered them 2% for the remaining years.
There needs to be some compensation for the banks, they are taking on the risks.
January 9, 2011 at 12:15 am
To ‘No Debt Guy’
Thanks for the input… I respect your opinion but I think the Banks have gotten away with too much for too long……. IRD was brought in to compensate the banks for the different between the existing interest rate and what they can now charge…. the problem here is that they are using a formula that is not accurate or realistic….. They are clearly over-charging borrowers…as I showed in my real life example… I have not seen any Bank or mortgage lender advertise a 3 yr rate of 2.74%…. and yet, this the rate they are using to calculate your penalty…
I’m open to discussion on this… please show me where the Bank is in the right here?
January 10, 2011 at 11:33 am
Found your blog through CMT’s post today. Great analysis, looking forward to reading through the archives.
January 10, 2011 at 6:45 pm
Thanks Brian.. !
January 12, 2011 at 11:54 am
[...] ran some numbers on how penalties were affected by the banks’ actions (you can read them here). Garganis used TD’sIRD formula in his example but TD is not alone. Other lenders [...]
January 14, 2011 at 3:08 am
[...] caught this article on Canadian Mortgage Penalties the other day. This is why term is so important. Many people are [...]
January 18, 2011 at 1:13 pm
Are you going to start a petition or a Facebook group or something? I’ll sign up!
Thanks for bringing this up!
January 18, 2011 at 1:21 pm
The govt announced some changes yesterday to make it tougher to get mortgage financing…. I was disappointed they didn’t make any announcement about mortgage penalty standardization…..
January 22, 2011 at 5:31 am
[...] investigation by the CanadaMortgageNews.ca blog says the penalties for breaking a mortgage are [...]
February 4, 2011 at 1:21 am
[...] Andrew Legge – January 14, 2011 I caught this article on Canadian Mortgage Penalties the other day. This is why term is so important. Many people are [...]
September 10, 2011 at 6:00 pm
Hi there
I totally understand everything you’ve said in this article and unfortunately am currently a victim of this scam. RBC is trying to tell me that they gave me a 1.75 discount on my rate which is currently 3.54 percent. I was looking to get a new mortgage from them for the new home I had purchased but they said the balance would have to be put on a 4 year mortgage at 4 percent (to be blended with the original mortgage at 3.54) Clearly this shows that rates have gone up since they couldn’t even match my current rate. The “discount” is how they get you. When I asked an RBC rep if rates had gone up or down since I signed up at 3.54 percent in December last year, they would not answer my question. (we know that the IRD is based on what it costs to replace the mortgage and if they could get 4 percent than I shouldn’t be paying the IRD, just 3 months interest) That’s all I needed to hear to know that they knew they were manipulating the system. I’ve now been charged $15,000 to get out of my mortgage and I plan to take it to small claims court. (ps I had about 4 years left on the mortgage which means they would have to replace it with a 4 year term)
September 12, 2011 at 11:07 am
Hi Vanessa,
And the penalties are only going to get worse given that rate discounted have increased even more…. The Banksters can’t lose. If they give you a bigger discount, they will just make it up on the next client when they refinance or pay the mortgage out…..
Statistics tell us Canadians move or refinance their mortgages ever 3 years… For those of us in Fixed rate mortgages, we are going to face huge penalties at some point down the road…and the Banks know this…
This is another reason why shorter term mortgages or variable rate mortgages make sense… The stats don’t lie… Variable rate mortgages have outperformed Fixed rates in over 88% of the time…
My advice to you is forget about the small claims court…. Instead, go to the RBC Ombudsman’s office https://www.rbc.com/contactus/ombudsman.html or go to the Ombudsman for Banking Services and Investments http://www.obsi.ca/default.aspx.
There is also another option…. media…. Bank’s don’t like the media.. they want to fly under the radar… There is one person that has helped several of my clients and dozens of Canadians with their problems with Big Corporations…. Ellen Roseman… Ellen is a consumer advocate and a personal financial expert…. eroseman@thestar.ca. Send her an email and ask for her help…. Let me know how it goes.
SG
September 27, 2011 at 3:49 pm
Hi there
Thanks so much for your reply! I wrote to the Ombudsman for Banking Services and they said that they no longer deal with RBC and that I would have to go through theirs. I’m a little leary of that because I don’t see how they wouldn’t favor Royal Bank considering they’re employed by them. I have read Ellen Roseman’s articles and they are fantastic so I will definitely be in contact with her. I will let you know how it goes! Thanks again for your response.
Vanessa
September 27, 2011 at 3:57 pm
Hi Vanessa,
Strange that the Canadian Banker’s Association said they no longer deal with RBC…? I just wet on the Canadian Banker’s Associate website and found RBC listed… check this link out http://www.cba.ca/en/component/content/category/44-resolving-problems-with-your-bank
In any event, I suggest speaking with Ellen Roseman… Perhaps she can help…. keep me posited… Thank you.
SG
September 28, 2011 at 12:14 pm
Hi Steve
I wrote to Ellen and she responded within minutes! She has written to her contacts at RBC regarding the penalty and said I should hear back from them within a week or so. Should be really interesting to see how they respond. Thanks again for the recommendation and I’ll keep you posted!
Vanessa
September 28, 2011 at 12:17 pm
Hi Vanessa, that’s great news.. I knew Ellen could help…. keep me posted… and good luck..
Steve Garganis
October 24, 2011 at 1:49 pm
Well so far Royal Bank just told Ellen I have to go through their Ombudsman so I’ve written to them but certainly don’t have a whole lot of hope. I also pointed out the fact that they did not disclose that I could make the one time yearly payment allowed in order to reduce my penalty so we’ll see what they come back with.
October 25, 2011 at 2:11 pm
Hi Vanessa,
Keep us posted… we’re in your corner and hoping you get some positive results!
SG
January 31, 2012 at 10:29 am
Hi Steve
I wrote you back in October and thought I would share my results in my battle with RBC. I’ve finally just gotten a response back from the RBC Ombudsman. To be honest I wasn’t expecting them to come back with anything so I guess it’s a small win. Based on the fact that I brought up my right to have the chance make a lump sum payment prior to closing the mortgage (which would have saved me about $1500) as well as the fact that I saw a small discrepancy between the discount they gave me on the mortgage (1.65%) and the discount they quoted in their letter to me (1.75%) I have been told by the Ombudsman that they will be contacting me so that they can reimburse me in the amount of $2,500.00. At this point I think to try and fight for anything more would probably be a waste of time and energy. Anyways thanks so much for all your input on my situation and for keeping people informed! This has definately been a huge learning experience for me!
Thanks
Vanessa
January 31, 2012 at 12:28 pm
Hi Vanessa,
Well, it’s good to see you got something back…$2,000 from a $15,000 penalty… but it pains me to see Canadians, like yourself, having to fork out these obscene amounts of money to the banks, especially when the penalties are unjust and probably not legal… that’s right.. I think, if challenged in court, the penalties would not be allowed.. the basis for penalties was to cover the difference between what the bank could lend money out for and what your rate is… Today’s penalty calculations do not work that way..
By the way, have you seen the class action lawsuit again CIBC bank for cryptic language regarding penalties? http://bit.ly/zxIrkn
Maybe RBC is next? I’m sure you would sign up for this if there was a list….
And one more note… I have come to a conclusion that the BIG SIX banks should not be considered if you are taking a fixed rate product… that’s a strong statement, but their penalty calculations are just too biased and we have seen several non-bank lenders step up and offer rates and terms just as competitive or even better, than the banks.. but without the unfair penalty calculations… if you ever need advice about a mortgage, don’t hesitate to contact me…
Steve
October 29, 2011 at 8:38 pm
Hi Steve,
I just recently got a Variable-Closed mortgage through Industrial Alliance this year, and my lawyer said that if I “break” my mortgage I will be only paying a penalty. Several months later I was re-reading my mortgage documents, and I found this confusing clause (word-for-word) on my document–
Up to the this Anniversary date of the term, upon closing of a sale of the property by a sale representative to a bona fide arms length purchaser, repay all of the outstanding principal, and pay the accrued interest subject to the payment of a penalty equal to the higher of the following amounts:
A.) 3 months interest calculated at the mortgage rate on the balance of the principal reimbursed in advance or;
B.) the difference between the balance of the principal owing at the time of prepayment, and the present value of all monthly loan payments to the date of maturity together with the present value of the principal outstanding at the date of maturity. The present value of the principal outstanding at the date of maturity is calculated at an interest rate differential discounted at the “Yield of Government of Canada Bonds” on the market with the equivalent term to maturity plus 0.90%.
Based on the above information, will I potentially be paying IRD penalty if I break my mortgage with 48 months remaining on my 5-year term? But my lawyer said I’ll only be paying 3-months penalty? I’m selling my house because I’ll be relocating because of my job. Thanks for your help and more power to you sir.
-Onin
November 1, 2011 at 1:25 pm
Hi Onin,
If your lawyer is telling you that the penalty is 3 months, then I wouldn’t argue… However, I also read the fine print and couldn’t really see what the penalty is for Variable rate mortgages at Industrial Alliance… I’ve made an inquire with Industrial Alliance and awaiting their response. Will advise.
Steve
November 1, 2011 at 7:40 pm
Hi Steve,
A million thanks for taking time to reply to my question. Hopefully Industrial Alliance will get back to you with a reply. More power to you sir!
-Onin
November 2, 2011 at 10:04 am
Hi Onin,
3 month interest penalty for variable rate. Industrial Alliance confirmed with me today.
Steve
November 2, 2011 at 11:56 pm
Thank you Steve for confirming with Industrial Alliance with regards for the penalty. All the best to you!
November 17, 2011 at 11:26 pm
dear sir i need some info about fix for three years renaming months are 33 i have to sell home because my wife lose job i cant keep continue i ask my lender they talking about 20,ooo thousand i am relay worry besuse i got kids and they are taking all my down payment please i need help please god blees u
November 24, 2011 at 2:05 pm
Hi Ijaz, I’d be happy to help . Feel free to contact my office.. visit my website at Needamortgage.ca.
In times of hardship, some banks will give the client a break but I would need to know some more details.
Steve
November 24, 2011 at 11:16 pm
Hi Steve and Ijaz,
It’s really sad that the financial industry doesn’t really give a crap about its customers when it come to mortgage penalties. The least that they can do is standardize the calculation/computation of the mortgage penalty fees, and to make the formulas for calculating the penalties and the fineprint transparent to the client PRIOR to signing the mortgage contract. We’re all human beings here, and I don’t understand for the life of me why businesses nowadays seem to lack some humanity and compassion. All the best to you Ijaz and I hope for a very good outcome on your situation.
-Onin
May 9, 2012 at 10:56 pm
I am currently fighting with the RBC bank over my mortgage IRD calculation. I had 3 years left on a 5 year term. I asked the bank to allow me to renew the mortgage early to a 7 year term as I was expecting interest rate to go up just as I was hitting the renewal date.
I was offering them more business at a higher interest rate. Their response was to insist on a $12000 penalty. What other business in the world would charge you a penalty to give them more business at a higher rate.
I am trying to get the Alberta Government to go after them under the Alberta Fair Trade Act. I do not know if this will work but I want to work at getting this issue out in front of the media. If you have been a victim of this unfair practice please contact me as I am working on a putting together a list of people who have this issue and develop a strategy to take this issue on.
The only hope to resolve this is to get enough people and lot of attention on this issue.
Please email me at david . m . hewlett @me.com I have added extra spaces to stop robo spam just take them out.
May 11, 2012 at 5:28 pm
Hi David,
I wish more people got together and took a stand…I truly believe the current prepayment penalty calculation formulas that are used by the BIG SIX Banks, and some of the Lenders, is wrong.. I question the ethics behind making someone pay for a discount for the duration of the mortgage term…. this just isn’t right…
Current mortgage penalties are not a true reflection of the BANK’S cost or loss… CIBC has a Class Action lawsuit pending regarding penalties… I’ve had another reader tell me he is trying to find other TD Bank clients that may have been a prepayment penalty… he wants to take it further… I applaud you all.
And the part that is most frustrating is that the small lenders.. the one’s that people think are not as safe…they are NOT making borrowers pay for the discount for the entire term when calculating prepayment penalties… keep up the fight.. let me know if I can help…
Steve
July 9, 2012 at 9:30 pm
We are having a similar problem at this minute. We will join you and whatever you are doing re: law suit. We are TD clients and they are not bending at all. We have been with this bank for 30 years and have currently two mortgages with them on two different houses. They expect to collect 12800 from us for a 283,000 mtg. I thought the Government wanted to encourage people to lower their debts. OMgoodness! The Big banks are just WRONG! They should be STOPPED! I will help. I have time and I have energy. I will e-mail on your other account too.
Terry
July 10, 2012 at 3:12 pm
Hi Terry,
I’d be happy to review your penalties… can’t promise that I’ll find any savings but I’ll take a good look at your options… contact me with more details..
The BIG SIX BANKS have inflated their penalties…. it’s a terrible situation… the govt has turned their backs on Canadians.. they promised to standardize the penalties in the 2010 Federal budget…but withdrew the promise this year… I have another reader that is interest in starting a lawsuit against TD… with your permission, I can give him your contact info… I don’t have any details about his issue or progress but you may want to explore… Let me know and I’ll put the two of you in contact…
By the way… there is a class action lawsuit against CIBC… it hasn’t been heard by the courts yet but you may want to follow it… just google it by typing in CIBC class action lawsuit mortgage.
Steve
Steve
July 13, 2012 at 5:06 pm
Thank you very much for answering Steve: I would love for you to send me the contact or send my contact info to the other angry TD person. Maybe we can find a way to get a Class Action suit going too. We do understand the options available to us – not great ones, but we will pursue those for sure. We have taken step one: the pre-letter to the TD Bank manager. The next step will be to begin legal proceedings. It might cost us money, but we actually don’t care at this point. It is “the principal of the thing”. Let me know if others have TD issues too and we can slowly collect a following. This really needs to be stopped.
Thanks again,
Terry
July 23, 2012 at 3:04 pm
Hi Terry,
I suggest putting up your contact info on this post… there are others interested in taking action… would be good to see happen.. If I can help, just let me know…
Steve
June 12, 2012 at 11:22 pm
i have a mortgage with cibc and the penalty fee is $10 000, any news on the lawsuit? do any of the other banks consider helping with your penalty to get your business? thanks oliver
June 15, 2012 at 8:32 am
Hi Oliver,
I think your story is one that’s happened often…. and needs to be told to the rest of Canadian borrowers… Thank you for providing me further details in a separate email…
So your Banker tells you to get out of your Variable rate mortgage 3 and a half years ago….and into a 5 yr fixed rate because the economy is faltering…. What? Are you kidding me? That’s exactly the time you shouldn’t be locking in…. Any experienced advisor should know this… I personally issued a formal recommendation to my own clients in October 2008 advising them NOT lock into a long term Fixed Rate.. but to stick with their existing Variable rate.. or to consider taking a 1 yr fixed or another short term product until the market settled… http://bit.ly/blBrnc
I continued to issue similar recommendations for the next 3 years…. and have only recently been recommending 5 yr fixed rates as a good option… So you take their advice like most people would, and lock into a 5.95% rate….OUCH!
And you’ve had to pay an inflated rate of more than 3.00% higher, for over 3 year!! (Imagine paying 3.00% more per year on your mortgage…!!!) And now you want to get out of that higher rate and into these record low rates but are told you have to pay a $10,000 penalty…. double OUCH!! Another slap in the face…
I would seriously consider contacting the CIBC Ombudsman and the Canadian Banker’s Ombudsman to complain… Let’s discuss further… I’d like to try and help if possible…
Steve
July 16, 2012 at 11:25 pm
i am in the process of initiating a small claims suit against the royal bank for providing me with an inaccurate mortgage pay out. does anyone out there have any advice.
doug riot@telus.net
July 23, 2012 at 3:12 pm
Hi Doug,
I’ve put your message up… and I have a few other readers that want to take action… hoping you can connect with some… keep me posted.. let me know if I can help..
Steve
July 24, 2012 at 9:43 am
We also are in a position of a $ 23,000 to leave scotiabank, not sure how they can get away with that when they will turn around and lend the same money, to someone else, what are they loosing ?? Nothing just gouging the consumer, we recently did a refiance we had a cmhc insured mortgage, paid them thousands, when we did the refinance the bank said Cmhc wouldn’t insure we had to go to Genworth because Cmhc didn’t believe the appraised value did Cmhc reimburse the money for the premium not a chance we had to pay Genworth another 15,000, let me know if there will be a class action suit for large penalties, and sign us up
July 24, 2012 at 9:57 am
Hi Charlene,
CMHC thinks your home is worth less than Genworth appraised it for…. This is terrible.. I think someone should have been a little more aggressive and challenged CMHC… Not sure there is anything we could do now… But with regards to penalties, I suggest you post your email so that the other readers may contact you… so far, there appears to be a growing number of people that are tired of being gouged with unfair penalties… I have posted your comment… take a minute to read some of the other names… there is a growing number of people replying… keep me posted… let me know if I can help.
Steve
July 24, 2012 at 10:08 am
I tried talking to CMHC to get some of the premium back and they basically laughed in my face
July 24, 2012 at 10:24 am
Had you been my client, I would have paused my Genworth approval and gone back to discuss with CMHC… getting money back from them is probably not gonna happen… but I have seen CMHC take a second look at appraisals to help determine value…. I hate even telling you this now as I don’t want to add fuel to your fire.. but it’s something you must be aware of…
steve
July 24, 2012 at 10:09 am
Cmhc needs a shake up too
charlene/ cdenny11@hotmail.com
August 1, 2012 at 3:51 pm
Beautiful article. Unfortunately its true what you are saying. Right at this moment I`m trying to negotiate penalties with our bank. But what I`m trying to make happen is for them to waive the discount that they say they gave us up, because that discount is nowhere stated in the mortgage agreement, there’s no paper stating that they gave us any discount, and I personally do not remember that they gave us any discount. The branch manager couldn’t even pull out any proof that they have given us that discount. They calculated 1.9 discount and it changes the penalty significantly. If they weren’t calculating the discount the penalty cost would be 75% less.
I`m wondering if this will force them to exclude the discount out of penalty calculation because its nowhere shown but in their system (computer software)??? if anyone has any idea please write back.
Thanks
Caithy
August 8, 2012 at 10:51 am
Hi Caithy,
You’ve said it well.. and I see you understand the problem.. i only wish more borrowers would take the time to understand why penalties charged by the banks is unethical… There are several other major lenders that DON’T calculate penalties with the same inflated formula….
Steve
October 27, 2012 at 8:48 am
Hi,
Read your comment to the article. What was the outcome of the debate with you bank? I am in the same situation now and the bank (TD) insists on the huge penalty. About 15 months to the end of the term.
Thanks
Alexey
October 30, 2012 at 7:44 pm
Hi Alexey, TD has not changed their penalty calculation.. None of the BIG SIX Banks have… and that’s too bad… the govt said they were going to implement a standard penalty calculation.. but that promise has come and gone.. almost 3 yrs ago… instead, they are making Banks post online penalty calculators which really show how much Banks are gouging borrowers… if you need help or would like some advice on your current penalty… just call or email me… i’d be happy to take a look and see if there are any loopholes in your penalty quote….
Steve
416 224 0114
steve@mortgagenow.ca
November 29, 2012 at 1:23 pm
I would like some help on this numbers game. It is bloody confusing. RBC is asking me to pay $3823.94 IRD penalty on an investment property I sold. Balance used to calculate is $85,453.03 / Interest rate is 3.59% / Discount was 1.6% / Term reaming 36 months / Comparable term used to determine applicable posted rate is 3 years / current posted rate is 3.65% / rate used for calculation is 2.05%
With this info do I have any case here? I have another mortgage that I will be paying off with the funds from the above property sale and they want $7k plus ! Can anyone shed some light. I already spoke to bank manager and he said NO nothing we can do even with all my future business and 22 year history with them. I went to office of RBC ombudsman and filled out their online complaint line but it was vague and I feel like a sitting duck. Any info or help?
I would love to join a class action on RBC
Thanks
Gary
December 2, 2012 at 3:23 pm
Hi Gary,
You probably don’t need to be told this, but do you realize your penalty is equal to over 14 months interest!!? How crazy is that?
I do agree.. this is just another example of an inflated penalty being charged by a BIG SIX BANK. For the Bank to use a rate of 2.05% to calculate your IRD is completely ridiculous and unreasonable. IRDs were created to help cover the difference the client rate and current rates… and the best advertised current 3 yr rate for RBC is 2.99%… Your penalty should be just over $1500… unfortunately, you will have an uphill battle with this… You might consider filing a complaint with the Office of the Superintendent of Financial Institutions (OSFI). Banks don’t want any complaints. If enough people bring up their concern to the govt, eventually, they must start to listen…
BIG SIX BANK mortgage penalties have been a real pet peeve to me. I have seen far too many borrowers held hostage or forced to pay obscene penalties… The penalty calculation is unjust, unfair and it has to stop.. Speak up and continue to share your experiences.. Let me know how it goes….
Steve
December 9, 2012 at 7:59 pm
I am in the process of renewing my mortgage with the Royal Bank.
Five years ago I took out a 5 year mortgage with the Royal Bank and the loans officer told me if I wanted to break it, it would cost me about three months interest but when I tried to renew my $85000 mortgage a year or so early the penalty was $4000 or $5000 – I decided to wait.
Today I am about to renew my mortgage and am considering a five year mortgage again (RBC), but may need to move or get out of mortgage in a few years ( hopefully not).
The loans officer is again, telling me there would only be a small penalty of maybe $1200 but she will not disclose the formula on how they calculate the early payment penalty. I have tried to call Royal Bank supervisors, but it seems to be top secret or no one knows. And I want to know if the formulas for calculating early payoffs have changed from my last mortgage now that interest rates may be on the way up.
One website says they take posted rate for term closest to what is left on your mortgage and deduct the
discount you received and that is your IRD. That will be a disaster if I need to get out of mortgage and interest rates have gone up! I would have thought the penalty would be less if interest rates go up, so I am thinking this must be a mistake.
The loans officer cannot produce my contract or a sample until I am ready to sign on the day of my renewal ( Royal Bank).
The only answer I am getting from anyone – including my lawyer is if your worried just take out a two or three year mortgage instead.
I find this frustrating as it would really help to know what the penalty might be, as I try to
plan my future. I believe it is my right to know! These discharge/early payout penalties need to be more transparent to the consumers that want to know.
Do you have any advice?
December 10, 2012 at 2:57 pm
Hi Wendy,
Good speaking with you today… It’s unfortunate your RBC rep can’t give you clear answers or guidance… I think if you are selling in 3 yrs, and are not sure about whether you will buy another home, then I would take the 5 yr variable rate… or the 3 yr fixed rate… I like the Variable because your penalty is capped at 3 months interest… we also think interest rates won’t go sky high in 3 yrs… it will probably go up but if you are comparing an RBC penalty of $4k or $5k, then take the Variable… Hope that helps.. I’d be happy to arrange a good mortgage for you… with clear and fair penalty formulas..
Steve