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Bank Complaints on the rise and Mortgage penalties are a big reason

A report just came out from the Ombudsman for Banking Services and Investments that shows complaints are on the rise…

The report shows Bank complaints were up 21%.  Many of the complaints had to do with Mortgage Prepayment Penalties and rates on Lines of Credit….. This shouldn’t come as any surprise to anyone with a Bank Mortgage.

Last year was the start of record low interest rates… Mortgage rates were down below 4.00% for a 5 yr fixed and Variable rates were below 2.00%…  If you bought a new house or renewed your mortgage, it was great….you couldn’t have timed it better….

But what if you wanted to refinance your existing mortgage?  Could you do it?  If you were in a Variable rate mortgage, your penalty was probably 3 months interest or less…. That’s quite reasonable and manageable for most.. but if you were in a Fixed Rate Mortgage, then you were in for a surprise from the Big Banks… Enormous prepayment penalties….  Here are some real life examples… a $250k mortgage had a $13,000 penalty… a $275k mortgage had a $18,000 penalty

These penalties equaled 8 and 10 months of interest.…How can this be?  Well, the Banks changed how they calculate prepayment penalties about 10 years ago… To sum it up, you have to pay for any ‘discount’ off the posted rate.  And you have to pay for that discount in full.. for the entire duration of the mortgage….Not fair?  I agree.. extremely unfair…

Is there a connection with $billion Bank profits and these prepayment penalties?

If you are unsatisfied with a prepayment penalty then make some noise.. I encourage you to contact me or the Ombudsman for Banking Services and Investments .

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.

5 thoughts on “Bank Complaints on the rise and Mortgage penalties are a big reason Leave a comment

  1. I am a financial planner. While reviewing a client’s mortgage documents,we uncovered and had a concern regarding unwarranted possible fees being charged. After re-financing his mortgage for home improvements and other loan consolidations, we have discovered that CMHC fees are being charged or that is re-charged on total amounts rather than on the re-financed amount. We have been in contact with the bank and researching on these re-financing fees of insured mortgages. Not only are peolple paying for insured mortgages but also seem to be charged on prior insured amounts. Has the ombudsman or has there been any other enquiries concerning this matter ??

    • Hi Norbert,

      You bring up a very important topic and issue… and one that is worthwhile discussing.. I will have to elaborate more on this in the future…I have seen this situation happen many times in the past… but here is a quick explanation…

      CMHC insurance premiums are required for all mortgages over 80% loan to value. But the premium is portable….meaning the policy can be transferred from one property to another…. and if a borrower were to refinance a mortgage, they would also be given credit for premiums already paid….CMHC would only need to be charged on any new funds being advanced, using a certain formula….and this usually results in saving the borrower $$thousands… Provided the remaining amortization stays the same and the loan to value does not increase from the original loan to value, then the insurance is portable.

      Most times, the lender will see that a client has paid CMHC in the past and make a request to port the existing CMHC insurance… However, if the lender does not request this, then a new CMHC premium will be charged on the entire loan…..and this could cost the borrower $$thousands….

      Unfortunately, this is nothing new.. I have seen borrowers get poor advice and have to pay for a new CMHC policy, unnecessarily. This happens more often then you probably think…..

      If you have a client that may have been overcharged, then they should discuss with the bank Ombudsman….

      I will also say that sometimes it is necessary to pay a new, full CMHC premium…. if the original amortization is too short and the borrowers need a higher amortization… or if the loan to value is not higher than it was at the original time of the mortgage… in these cases, a new CMHC policy may be necessary….

      It should be noted that there is more than one mortgage insurer…. Genworth Financial, Canada Guaranty (formerly AIG) and CMHC. The insurance is not transferable between insurance companies….

      Thank you.

      • Thank You for your comments. We do want to discuss with the Bank Ombudsman but only after we get an explanation from the financial institution directly on how they process these applications to the insurers, either CMHC (in this case)or Genworth Financial.
        My concern is that the insurers are only administrating as per the presentation of these mortgage documents. Other concern is that the CHMC fees are usually added with the borrowed amount and amortised creating higher financial and unnecesary interest charges that are being charged to the consumer. It is sad to see that many consumers are not well advised or take a due deligence approach of understanding the finance of one of the largest asset they will ever own, their home,

  2. This was CIBC, I will relay their reply to you to post when we get it. The manager has relayed our enquiry to their other department about the specifics of the account.

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