Picture this… Your mortgage is with the biggest Canadian Bank in Canada. You feel safe. You got a great rate at the time… 2.99%. What could go wrong? Well, for these clients, and hundreds others, plenty!
Check out the RBC Discharge stmnt oct 2014 showing an Interest Rate Differential (IRD) prepayment penalty of $8912 on a mortgage balance of $213,562. Now, $8912 is a lot of money, but you’ve seen me expose even higher penalties in the past. Penalties as high as $35,000 and $40,000. But, put another way, that’s over 15 months worth of interest penalty being charged. And that’s just ridiculous!
NEWS FLASH! This type of inflated prepayment penalty calculation isn’t exclusive to RBC, the rest of the BIG SIX BANKS use a similar calculation. And they’ve been getting away with these outrageous penalties for over 14 years! (actually, this isn’t a new story.. I’ve been writing about these nightmare, or bankmare, penalties for years.)
Let me put this another way…. Had this client gone to another lender for their mortgage 3 years ago (and there were/are several better competing Lenders out there), they would have received the same or better interest and NOT be charged this penalty. In fact, their penalty would only be a 3 month interest charge, or around $1600. That’s a $7312 savings!
Let’s look even closer… Suppose this rate from RBC was better than what other lender had to offer (it’s not the case but let’s speculate). Suppose this rate was 0.25% better. Would this borrower be better off with RBC? NO WAY! A 0.25% savings on the rate only works out to around $550 per year. That’s not even close to making up for the inflated penalty charge.
I’ve stopped trying to get the BIG SIX BANKS to change their ways. Even the Federal Govt caved in and has stopped pressuring the Banks to Standardize their penalties. Seems like our pleas have fallen on deaf ears. Instead, my focus is aimed at educating Canadian consumers. We want to show them there are better alternatives. Canadians can choose from a wide variety of quality Mortgage providers. Lenders that offer better rates, better terms and service and better prepayment penalty calculations.
THE SOLUTION IS EASY
Next time you are looking for a mortgage, or when your mortgage comes up for renewal, seek out the advice of a Mortgage Broker. Let them shop your mortgage. Brokers are the only unbiased, market neutral individuals that only work for you. You might be pleasantly surprised. Had this RBC client gone to another Lender, they would have saved themselves over $7,000. Don’t be another victim. (by the way, if you want more details on how you, or this borrower could have save $7,000, contact me and I’ll be happy to share).
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 firstname.lastname@example.org
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.