The true cost of mortgage penalties is a common concern and complaint among homeowners so it seems reasonable to review it once again as a follow up of my previous post in Sept 2012.
Due to the sometimes complex calculations the banks use to determine this amount – consumers have been left in the dark when trying to make a decision on whether the cost of refinancing early is worth it or not. Recent changes and more to come will regulate the banks to provide more information up front and over the life of your mortgage on penalty costs. As a broker I always discuss the true cost of mortgage penalties with my clients to ensure we work with lenders that have best options for penalties if ending the term is a possibility for any reason.
I recently discussed the true cost of mortgage penalties, blending rates and provided comparisons in one of my To Finance and Protect video blogs.
In the example I provided the three possible options for a penalty. First, three months interest. Second, interest rate differential (IRD). Third, the difference between IRD calculations by the bank and other lenders. Almost all of the major banks have a different IRD calculation than other lenders which can more than double and in some cases triple the penalty. Knowing the exit cost of your mortgage is an important part of the decision in choosing a lender and many people don’t realize this until it is too late.
The majority of long-term fixed-rate mortgage holders terminate or change their mortgage before their term is up. In fact, the average five-year mortgage lasts only three to four years. Penalties apply in only a minority of these cases, but for those who are affected, they can substantially raise your overall borrowing costs
Note: The Financial Consumer Agency of Canada (http://www.fcac-acfc.gc.ca/eng/resources/publications/mortgageLoan/RenewMortgage/RenewMortgage-3-eng.asp#Breaking) is doing a noble job encouraging clarity with mortgage penalties. By March 5 2013 it will go a step further by requiring banks to provide: annual information to help consumers calculate their penalty, written penalty statements upon request with clear calculation explanations, and access to exact prepayment penalty quotes by phone.
To discuss your early renewal or refinance options, give me a call anytime at 604 813 8402 or email email@example.com