CBC news reports Scotiabank slams client with $30,000 penalty!
A word about world events the past 4 weeks… We have seen a lot of turmoil overseas…… Egypt, Libya and other middle east countries…. We need to pay attention…. Let’s hope for an immediate and peaceful resolution…
The Tsunami in Japan has been horrible… the images on TV are tough to watch…what a tragedy… Our hearts go out to the people of that nation.
Fixed rates drop slightly and Variable rates remain flat.
We have also seen how mortgage rates can be affected by these events… The uncertainty has caused the Bond market to fall…. and we even saw a very small rate reduction by the Big Banks… Posted Fixed rates are down around 10bps… 5 yr fixed is 5.34%.
Variable rates are expected to stay the same until end of summer…maybe longer…Current Variable rates are around 2.25%. There were some stats on inflation falling… we’ll report on this later as this will have a big impact on future interest rates…
Scotiabank says ‘You’re richer than you think’… Well, not if you have one of their mortgages.
Here’s another Mortgage Penalty nightmare… CBC’s Kathy Tomlinson reported that one Scotiabank client had his penalty double over the course of 9 months. They first quoted him a penalty of $13,000 on a mortgage that was over $400k…
In November, he sold his condo and when he went back to the Scotiabank branch, his personal banker said his penalty was now $33,000….!! Yikes! The borrower was floored, to say the least… How could this happen.. ?
Well, the Banks have been getting away with this for over a decade… (here’s a link to an in-depth study that we did in January that explains in detail how they do it and why it’s not right and needs to be challenged.)
In the end, by the time the client closed his sale, the penalty had dropped to $30,000 (because interest rates went up) and Scotiabank discounted this by another $5,000 for a total penalty of $25,000. It was their gesture of goodwill according to the article…. (I’m sure that made the client feel much better.. it’s like saying, “drink this glass of poison kool-aid… no wait…you only need to drink half that glass….It will still kill you but it’s our goodwill gesture.”)
And here’s something I picked up in the article that should be addressed… the client said he was 2 years into a 5 year blended fixed rate at 5.19%…that means he either refinanced his mortgage or early renewed… that rate of 5.19% is extremely high… Discounted rates in April 2009 were around 4.19% and falling… This also would indicate that he may not have received a fully discounted mortgage rate. And if that’s the case, then how could he be charged this enormous penalty? I would love to see the paperwork on this penalty calculation…
Come on Federal Govt…. you promised to standardize mortgage penalties over 14 months ago… what are you waiting for? Canadians need this now… not when the economy is strong and interest rates go up… Make the changes now…
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Steve Garganis View All
As an industry insider, Steve will share info that the BANKS don't want you to know. Steve has appeared on TV's Global Morning News, CBC's "Our Toronto" and The Real Life TV show. He's also been quoted in several newspapers such as the Globe and Mail, The Toronto Star, The Vancouver Sun, The Star Phoenix, etc.
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Sure looks good on Scotia Bank doesn’t it? Being a real estate appraiser I know that I am not on thier approved list of appraisers, and therefore I don’t get their business. In order to get on their list, you have to kiss their asses. That’s not how I do busines. I remember I lost a large appraisal assignment because I was not ontheir approved list of appraisers. That pissed me off. When Scotia Bank says “you’re richer than you think!” Don’t believe them.
Hi Richard,
From my experience with Scotia, they think you are either with them or against them. They don’t believe there can be a middle ground. And that’s unfortunate. Let’s hope the culture changes one day.
Last 2 clients I’ve worked with wanting to move away from Scotia had penalties of $20,000 and $45,000, and rates over 7% when the going rate at the time was 4-5%. Totally ridiculous, talk to a broker, not a bank. A properly setup mortgage right now generally has penalties under $1000.
http://www.friesenmortgageteam.com
Hi Chris,
You said it well…One size does not fit all. A 5 year fixed isn’t the best and right mortgage for everyone…There are other factors that come into play when choosing a mortgage.. personal goals, objectives, income stream, risk tolerance, future moving plans, etc… A good Mortgage Broker can usually give good, impartial advice.
Who has more influence with bureaucrats in Ottawa? Scotiabank or the borrower?
Who gives more money to politicians? Scotiabank or the borrower?
Neither politicians nor bureaucrats nor bankers will change anything until they are forced into it by masses of borrowers! Keep on embarrassing them. It’s the only thing they understand!
If u sell ur house and , I think it is only fair that u pay a penalty sine you break the agreement. Wake up.
Hi JJ,
Paying a ‘fair’ penalty is all that anyone can ask for… Paying unfair penalties, like we are seeing in this situation, is not right….
The penalty calculation formula has been manipulated…. It goes way beyond covering any potential loss for the Bank…
SG
Definitely talk to your broker as I have been able to get my scotia bank to waive my penalty 2 times now in the last 3 years, All thank to my wonderful mortgage broker that has good relationship with that bank but does not work for them.
I heard only nice things about Scoitabank until a few months ago. Now many people say it is irrational. What is going on?
I paid a $17,181.80 penalty to Scotia. I was 2.5 years into a 5 year term and my new mortgage was with them! So much for being a loyal customer.
Hi Sharon,
That’s terrible but this is not uncommon.. We have heard of so many other that are getting hit with these huge prepayment penalties.. I just saw another one with a 20 months interest penalty…. The govt promised to standardize mortgage penalties, 2 yrs ago… while we wait, the banks are getting rich off the Canadian borrower…
Steve
We have been quoted $14,104 to break a 5 year term on a mortgage of just over 330K. We only have 15 months remaining and I have asked my rep at Scotia to explain how they do their calculations with no response. Other banks are now posting Mortgage Penalty Calculators for this reason and not sure why Scotia is not doing the same
We have been loyal customers for 30 years and not sure we want to take this hit, so may wait it out. But once this term is up – we are definitely moving on. Next time it will be a broker and we will ask A LOT more questions. Just hope we don’t get stung with ridiculous rates come 2013.
Hi Pam, unfortunately, this isn’t anything new… and I’m sorry to see, yet again, someone else being hit with unfair penalties… I sure would like to know what your interest rate is? There is a new Code of Conduct that was just announced earlier this week about the Banks having to provide better disclosure and access to penalty calculations… read here
https://canadamortgagenews.ca/2012/03/05/mortgage-penalty-rules-change-finally-well-sort-of/
Could you tell me what your current interest rate is? I may have some suggestions for you…
Steve
I had a similar experience, whereby my penalty changed by a few thousand dollars in the matter of days with ScotiaBank. When I asked my mortgage advisor why, she was unable to explain and said it was a complicated formula. I was able to calculate the discrepancy but did not reveal this. I did however suggest that a mortgage advisor should be able to work these things out and explain them to clients. Scotiabank refunded me the difference from the original penalty estimate.
Glad to hear you received a rebate…. Miscalculated penalty quotes happen often…. There is a class action lawsuit against CIBC because of their cryptic language when calculating penalties… The recent code of conduct rules will make calculating your penalty easier…. not sure if you saw the announcement a few weeks ago.. here’s a link http://bit.ly/Hb3Wn9
I think borrowers will really start to think twice about taking a fixed rate mortgage with any of the BIG SIX banks.. there are still several lenders that don’t calculate their penalty unfairly…. Mortgage Brokers know who they are… let me know if I can ever help… Steve
Hi, I am going to sign a five year mortgage with 2.9% to scotia bank over 500 thousand for a house soon, what should I be clear of before I sign the documents to avoid huge penalty?
Hi Annie, that’s a great interest rate for a 5 yr fixed term… You really can’t do anything to avoid Scotia’s penalty calculation… If rates go up over the next few years, then you probably won’t have to worry about a penalty like we saw with the borrower in this article… But if rates were to remain flat or didn’t go up too much, then you could be faced with a similar penalty….
Scotiabank, like all the other BIG SIX banks, Scotia adds the discount into your penalty… For example: If you have a $500k mortgage at 2.90% and the posted rate was 4.99%, then your discount was 2.09%… But let’s fast forward 2 yrs… and for some reason, you need to pay this mortgage out… let’s assume that rates remain the same as today…and your balance is $490k. Your penalty would be 3 months interest or Interest Rate Differential, whichever is greater.. Scotia would the then current posted 3 yr fixed rate of 3.99% less the discount your were given, 2.09%, and use this figure to calculate your penalty… 3.99% – 2.09% = 1.90%. they would then take your rate 2.90% less 1.90% = 1.00% and use this as your Interest Rate Differential…. so your penalty would be approximately $14,700..
If you think there is a chance that you may have to pay this mortgage out before the 5 yrs is up, then I would consider other options…. feel free to contact me for some other alternatives… And by the way, not all lenders calculate their penalties this way.. they are other options… drop me a line at steve@mortgagenow.ca if you want to talk.
Thae worst bank in Canada, they think you are rich and they feel free to take your money. Motgage penalties are sky high, no mercy!!! Cutomer service is poor, working hours terrible!!!