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20 September 2012

Banks Dirty Little Secret




In Canada, all mortgages products the same…Right ?? .  Most lenders offer Fixed and Variable rate mortgages.  Each lender will let you pay a certain extra amount on your mortgage each year, some 10% some 15% there is even one at 25%.  But who is kidding who, not many people today have that amount of extra income available to pay down mortgage to the limit of the lender. 

I have been brokering mortgages for more than 20 years and what clients have always focused on is the same thing…..RATE !!!.  Whichever lender offers the lowest rate, has the best chance of getting the mortgage.  Or at least you get your current Bank to match that special rate and you are good to go…

Or are you ??

The Banks Dirty Little Secret

I am not sure if you are aware there has been recent legislation forcing the Banks to disclose their mortgage penalty calculations to their consumers…Why?  Because not all Banks calculate mortgage penalties the same.

On the surface they all look alike.

Fixed Rate Mortgages- if you want out of the mortgage before maturity you pay the greater of 3 months interest or Interest Rate Differential (IRD). 

Closed or Convertible Variable Rate Mortgages – 3 months interest to pay the mortgage in full prior to maturity.

All Banks print this info on their mortgage papers.  (All look the same right ??)

But why is one client’s penalty $16680.00 and another client at a different lender’s penalty is only $3070.29.  (Both these figures were calculated by the Bank’s own Penalty Calculator’s using the exact same scenario.) 

That is an $136609.71 difference in Penalty and both lenders contracts say you pay the greater of 3 months interest or IRD… 



Just to show you how different things are…..

Found this great link where the Banks are actually coming clean with mortgage prepayment calculators

Again I input the same scenario into each calculator.

$400,000 Mortgage 5 year fixed rate at 3.09% taken out 2 years ago ( and the discount was 2.15 off of posted…   (This emulates todays 5 year rate and what would happen if in 2 years you need out of your mortgage….)  assuming all rates stay exactly where they are right now….

LENDER                            PENALTY

BANK OF MONTREAL                $14676.67 

TD BANK                                  $16680.00

CIBCs                                       $14739.16

ROYAL BANK                            $15454.01                                                                                                                                                                                          

SCOTIA BANK                          $15,000.00

HSBC                                             $9462.68

National Bank                            Very confusing, don’t understand what rates they want me to input…  What posted rate??  And why do they list….Standard rate and then Standard rate again???, For what term ??   Seriously that was what they decided as their clear and concise calculator. 

Go back to the drawing board National Bank…You win the award for worst Calculator…..

There you have our big Banks…..

Now just for kicks let’s look at ING’s    $3070.29 

Notice there is no question about what discount you received on that calculator…    Too bad Scotia Bank has just bought ING.  I wonder how much longer the ING way of calculating mortgage penalties will last.  

This is what I continue to stress is that the major banks have all gotten together and have rewritten their IRD calculators approx. 5 years ago, and are inflating the 5 year posted rate to maximize the differential amounts.  In the 20 years I have been doing this job, a discount that a client receives off of posted has never been in the 200 bps or higher range.  In the early 90’s the best discount someone could get is .25%....    Shame on you Big Banks..  I guess we all figured out where your massive quarterly profits are coming from.  

Some of the lenders I use are still calculating the IRD Penalty the old way, the same way ING does.  So when your Bank tells you they will match the mortgage rate another lender is offering your???  Are you actually getting the same deal??? 

Once you know about this DIRTY LITTLE “IRD” SECRET, staying with your Bank could prove to be a very expensive option.

You do the math!!!  Where do you think your next mortgage should go….???.

Never before has it been more important to use an experienced Mortgage Agent to navigate the turbulent waters affecting your next mortgage decision.

Not knowing all the facts could be an $13,609.71 mistake you can’t afford to make.  

Call me if you want all the facts before you make your next mortgage decision.    

David Kendall

Mortgage Agent

License # M08004045

211 York Road, Unit 3, Dundas, Ont. L9H 1M9

OAC Mortgages Brokerage License # 10928

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7 September 2012


Canadian homeowners are comfortable with their current mortgage, focusing on reducing their mortgage faster


23% are increasing their regular payments

19% are making lump-sum payments

10% are doing both

50% of borrowers pay $100 per month (or more) above their required payments

83% of Canadians have at least 25% equity in their home


5 September 2012

FW: BOC Holds Rate

Subject: BOC Holds Rate

Bank of Canada holds rate steady as global storm clouds gather OTTAWA — In
the face of mounting economic uncertainty, the Bank of Canada on Wednesday
once again left its key lending rate on hold, as expected.
"Global growth prospects are unfolding largely as the bank projected in its
July Monetary Policy Report," the central bank said its statement, "with a
widespread slowing of activity across advanced and emerging economies."
The bank held its trendsetting interest rate at 1%, where it has stood since
September 2010.
But as the U.S. Federal Reserve and other global central banks contemplate
further rounds of easing, Canada repeated what it has been saying for months
– that the time for removing stimulus could be near.
"To the extent that the economic expansion continues and the current excess
supply in the economy is gradually absorbed, some modest withdrawal of the
present considerable monetary policy stimulus may become appropriate,
consistent with achieving the 2% inflation target over the medium term," the
bank said in its announcement, using language identical to its last two rate
"There has been no significant change in the economic backdrop since July,
and the bank's bias is so mild that it can almost be regarded as
aspirational rather than any type of commitment," BMO Capital Markets said
in a note ahead of the bank's announcement.
The central bank's rate announcement comes after Tuesday night's election
victory by the Parti Québécois, led by Pauline Marois. Still, the separatist
party only narrowly defeated Jean Charest's incumbent Liberals, making
another referendum on independence unlikely any time soon.
The vote is also unlikely to affect markets, the Canadian dollar most
importantly. The loonie was little changed Wednesday morning.
Bank of Canada governor Mark Carney and his policy advisors made no mention
of the election outcome in Wednesday's rate announcement.
Prime Minister Stephen Harper, in a statement late Tuesday, said Ottawa does
not believe "that Quebecers wish to revisit the old constitutional battles
of the past."
"Our government will remain focused on jobs, economic growth and sound
management of the economy," he said. "We believe that economic issues and
jobs are also the priorities of the people of Quebec."
Bigger concerns for Canada remain: The still-unresolved European debt and
banking crisis, as well as the weak recovery in the United States and
slowing output elsewhere — in particular China, the world's second largest
economy after the U.S.
"The economic expansion in the United States continues at a gradual pace,"
the Bank of Canada said in Wednesday's rate announcement.
"Europe is in recession and its crisis, while contained, remains acute. In
China and other major emerging economies, growth is decelerating somewhat
more quickly than expected from previously rapid rates."
Canada's economy, meanwhile, continues to show modest growth. Gross domestic
product rose 1.8% on an annualized basis in the second quarter, in line with
the Bank of Canada's most recent projections.
For the year, the bank expects GDP growth of 2.1%, followed by a 2.3%
advance in 2013 and 2.5% in 2014.
Employment growth in Canada has been relatively disappointing, however, as
has U.S. labour market. Statistics Canada will report the latest employment
numbers for Canada on Friday.
Still, reiterating July's statement, the bank on Wednesday said that "while
global headwinds continue to restrain economic activity, underlying momentum
remains at a pace roughly in line with the economy's production potential."
European concerns will be front and centre on Thursday, when the European
Central Bank issues its monetary policy statement. No change is expected,
but the central bank could present its long-awaited plans to buy bonds from
Spain and Italy to ease the debt pressure in those countries.
Following its Sept. 12 and 13 meeting, the U.S. Federal Reserve could unveil
its latest plan to stimulate that economy, most likely announcing another
round of asset purchases.

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