Banks Dirty Little Secret

 

YOU MIGHT BE MAKING AN $13609.71 MISTAKE WITH YOUR NEXT MORTGAGE

 

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

http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2012/09/penalty-calculators.html

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.    

Thanks,
 
David Kendall
 
Mortgage Agent
License # M08004045
 
211 York Road, Unit 3, Dundas, Ont. L9H 1M9
OAC Mortgages Brokerage License # 10928
An independently owned and operated franchise of the Mortgage Alliance Network
 
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