Mortgage Penalties In the Media Again – 2020

A self-employed, single mother of a 12 year old boy, also taking care of her elderly mother, made CBC headlines for having to pay a $30,000 early termination penalty on her mortgage, when she was forced to sell her house in April, due to the COVID-19 pandemic.

By profession she’s a realtor. With the lockdown in full swing due to the pandemic, the Toronto Real Estate Market screeched to a halt and she saw her client base evaporate literally overnight. She used the mortgage deferral option for 1 month, but soon realized that if she continued down this path, she would only be delaying the inevitable. Her only option that she saw was to sell her home.

She was 19 months into her 5 year fixed mortgage, and the sale meant breaking early. Thus triggering the penalty.

The sentiment has not been very empathetic. The old adage of the borrower claiming ignorance when being hit with a penalty is not being widely accepted.

Over the last few years similar types of stories about penalties have been reported more frequently by the media. There has been enough media coverage and the public should be more widely aware that most of the big banks charge 200 points more on a penalty than the amount they actually lose when someone breaks their mortgage. The argument is that the awareness should be there, especially with someone being a professional in the industry.

Inside the industry, these stories are a reality everyday. Roughly 74% of Canadians take a 5 year fixed mortgage, and roughly 2/3rds of Canadians break their mortgage within the first 36 months.

I share these stats with every single client that I come across. But does everybody?

I used to think that people just didn’t care. A realtor for example, does not involve him or herself on the financing side of things. All they really want to know is if the mortgage has been approved.

After reading this article though, my stance has changed, somewhat. Maybe it’s not that they don’t care. Could it be that they don’t know? Why would a realtor put herself in this position, if she truly knew?

Yes, there has been a lot of media coverage surrounding penalties over the last few years, and yes the banks have had to improve their disclosures and pamphlets. But disclosures are one thing. How many banks will instruct their employees to tell their customers that their penalties can be 4 times larger than other lenders? Can this realistically even be expected of them?

Banks have one obligation and that is to their shareholders, that is what any of the upper management will tell you. You can definitely say that borrowers should know better, and should take accountability for flocking to the largest lenders with the worst penalties.

But why has the government not come in to clear up the ambiguities and regulate penalties. They were supposed to have a review back in the early 2010s, and since then we have heard nothing.

I had a client who signed with a lender 2 years ago, and that lender’s representative insisted that the penalty would be 3 months interest. I challenged this but the employee insisted, and the client took his word.

Flash forward to this last week, where the client wants to sell and checked in with the lender. The same representative informed the client that the penalty would be 4.5% of the remaining balance, which is roughly 4 times more than 3 months interest. When the client brought up the conversation, the employee responded by saying that he didn’t anticipate rates going down, and that he’s sorry….when the client asked for a run down of the calculations, the employee admitted that he did not know how to calculate it. Unfortunately, this is not an isolated incident. It is a concerning fact that most employees are not aware of the banks penalty policies and how they are calculated.

There are more than enough fair penalty lenders out there, and my thoughts are, should we not be doing more to ensure that our clients are clear on the potential ramifications. If we are aware of the probability that people will be making changes prior to the end of their term, isn’t it our responsibility to ensure they are set up for the most flexibility in the case they chose to do so.

The bottom line is the banks are profiting a great deal more (2% or more) than they are losing out when someone breaks their mortgage, and this has gone on far too long, with empty promises from the government. It is high time they step in and look at regulating. This is one area where I think they will garner support. They don’t seem to have any reservations stepping in to tighten qualification regulations for sake of the health of the real estate market, so why not here?

Make sure you understand the fine print before signing off on your mortgage approval. Failing to do so could be the most costly mistake you could make in your life.

The Truth about mortgage pre-approvals

Are we Pre-Approved? Not what you might think it means… Many clients think that having a mortgage pre approval puts them in a position to write offers on properties without inserting a ‘subject to receiving and approving financing’ clause in their contract.

April Real Estate Board of Greater Vancouver News

Here is a Quick Summary of the April stats for Real Estate In Greater Vancouver.


2017 Vancouver Real Estate Market

For quite some time now there has been a very limited supply of properties on the market and most Realtors that I speak with on a regular basis are starting to have buyers lineup. With very few properties to show these buyers, we are beginning to see similar trends that we saw a year ago.

Two main Reasons Rates Will Not Hit 5%

High borrowing rates are a relic. Canadian regulators may soon force borrowers to qualify at interest rates two percentage points above the contract rate. With many posted mortgage rates now approaching and even surpassing 3.00% (depending on the term), this means borrowers will soon need to show they can afford payments based on rates…


Mortgage Traps

Be wary of banks that offer you an extremely low initial rate with a significant increase a year later. For a first time home buyer in Canada, the complexities of mortgages can be very overwhelming, and it can be easy to get locked into a mortgage without getting the best rate possible.

One of These Three Things Have to Go Wrong For Lower Rates

There are 3 things that will dictate the direction of Mortgage Rates. One of them has to happen in order for rates to fall further – And one of them is Bad! If you are pulling for mortgage rates to go down here are 3 things that you should be paying attention to…


Canada Mortgage Rates- a Handy Guide to cibc mortgage rates

The Rate Tango: Canada Mortgage Rates Variable vs Cibc Mortgage Rates Fixed. Become an expert on Canadian Mortgage Rates with our Handy Guide. Many first time home buyers are wondering whether they should take advantage of this low rate or if they should lock in the more secure fixed rate mortgages.

Is This The End Of 5% down payment?

CMHC is the government body that insures mortgages. To put it in the simplest of terms, when CMHC insures a mortgage, it means the bank essentially does not have any risk when it issues the loan. Of course there’s some risk carried by the bank but the Government…


Mortgage Penalties In the Media Again

A self-employed, single mother of a 12 year old boy, also taking care of her elderly mother, made CBC headlines for having to pay a $30,000 early termination penalty on her mortgage, when she was forced to sell her house in April, due to the COVID-19 pandemic.

Daily Corona Virus Mortgage Updates

Canada’s lowest nationally available conventional variable rate is just nine basis points cheaper than a comparable 5-year fixed rate. That minuscule “fixed-variable” spread is now 80% narrower than its 10-year average. The market is no longer compensating new borrowers for the risk of a floating-rate mortgage.


If you would like more information or a free consultation contact Aleem below, and as a Certified Mortgage Specialist let me help you get the home of your dreams. Great Mortgages, Made Simple
Aleem Peermohamed - Mortgage Broker BC


More Posts

no interest rate hikes

Independent Mortgage Planner

Who Should You Get Your Mortgage Through? Hi Everyone, this is Aleem Peermohamed – The Mortgage Specialist Vancouver BC. One of my existing clients, who

Four Reasons To Save Money

Four Reasons To Save Money It’s not rocket science -everyone should be saving money regardless of how much you are making. The concept of saving

Mortgage Check-Up?

Eight out of Ten Canadians make a trip to the doctor at least once a year to help ensure they remain physically healthy. But how

Send Us A Message

Scroll to Top