An interesting article was published in the Globe & Mail last week regarding mortgage prepayment penalties and the onerous nature in which the Big Banks calculate theirs.
Statistically, 65% of mortgages will be broken and borrowers will pay a penalty before the five year term is up.
Many people think that the differences in how lenders calculate fixed-rate mortgage penalties are all the same. This is simply not the case.
In the current rate environment, when fixed rates are more favourable for borrowers than variable rate mortgages, it’s important to know that being with a chartered bank may potentially cost you a lot more in the end.
I don’t believe that the vast majority of Canadian mortgage borrowers have any idea that there are significant differences in the way fixed-rate mortgage penalties are calculated, and the largest Canadian lenders, have been in no hurry to explain it to them.
A few reasons mortgages are broken early;
- Marriage (keeping both properties is not always an option)
- Divorce (in many cases neither spouse is able to carry the property on their own)
- The appearance of more children than expected in your household
- Employment issues, both positive and negative – i.e. transfers, promotions or layoffs.
- Health issues
- This list could go on…..
As with entering just about anything in life understanding where the exits are and just what is involved in getting through them is often the most important part of the process.
A conscientious and well informed independent mortgage planner should be able to explain how penalties are charged by any lender they are recommending.