More disclosure.. but still no standardization of Mortgage Penalties.

 Last week, we heard some potentially good news for Canadian consumers.  Federal Finance Minister, Joe Oliver, announced Banks would have to provide consumers more disclosure on certain products, including collateral mortgages.  We welcome more disclosure.

However, before we get too excited and give the Federal govt too much credit, let’s wait to see if this latest promise really happens.   If you are wondering why I’m so skeptical, it’s with good reason.  The Federal govt has not honored their commitments before.  And I’m talking about the promise made to Canadians to charge a fair prepayment penalty…  Remember that one?

DEPARTMENT OF FINANCE PROMISED US A FAIR PENALTY FORMULA..BUT NEVER DELIVERED!

In March 2010, the Federal Govt announced they would standardize mortgage penalties after years of consumer complaints and ridiculously high prepayment charges.   The BIG SIX BANKS use, what I consider to be, an unfair prepayment penalty calculation.    Penalties that are 4 to 5 times greater than what other Lenders charge.   We’re talking about the BIG SIX BANKS… not some small unknown bank or financial institution.

The BIG SIX BANKS routinely charge prepayment penalties of $20,000, $30,000 and more!!  And you don’t have to have a $1million mortgage balance.  These penalties have been charged on average mortgage balances…  between $300,000 to $500,000!!     Put another way, these penalties can cost you 10, 12, 14, 16 months worth of interest, or more!   It’s no wonder the BIG SIX BANKS make up the top 10 most profitable corporations in Canada… reporting record profits year after year…!

By the way, that promise to standardize penalties, just disappeared…  No formal announcement that it was being renounced.  Poof!  Gone from the media, gone from our memories… Hopefully, this little reminder will make you pause to think.

And if you’re thinking why this penalty thing is so important… ‘of course, you don’t plan to break your mortgage before the renewal date.’    Well, the stats say different.  The average mortgage is changed every 3 years.  EVERY 3 YEARS!!!    So the chances are, that you will need to break your mortgage before renewal.

A TIP ABOUT CHOOSING THE BEST MORTGAGE LENDER.

The good news is that there are plenty of other Lenders that use the ‘Fair prepayment penalty calculation’ and they also offer competitive rates and terms, usually better than the BIG SIX BANKS..    Speak with an experienced mortgage broker to find the best mortgage product for you.  Qualified applicants aren’t charged fees by the broker.   A broker works for you.   This means advice that is unbiased and market neutral.

No Bank or mortgage lender will have the BEST sale everyday.  Just like shopping at Home Depot or Rona, sometimes there’s a sale, sometimes there isn’t.    Going to a broker ensures you find the BEST sale price… always!

Your best interest is my only interest.   I reply to all questions and I welcome your comments.  Like this article?  Share with a friend.

Steve Garganis 416 224 0114 steve@mortgagenow.ca