In March of this year (2012), the Government of Canada and the Financial Consumer Agency of Canada announced a new proposal on how to disclose mortgage pre-payment penalties on closed fixed term mortgages.
The initial reaction of the lenders comes to no surprise. Many are putting up resistance and some of them are saying they are confused.
The reality of the situation seemingly is that the lenders themselves were not quite sure how their penalties were being calculated. I witnessed this firsthand towards the end of last year when helping a few clients refinance and early renew their mortgages on the primary residence.
On one occasion, my client called the lender on 3 separate occasions getting a different answer each time to the same question of “how are my penalties going to be calculated and can you give me an approximation if I were to pay this mortgage out on December 31, 2011?”
There has been a lot of confusion surrounding pre-payment penalty calculations over the years, with there not being a lot of consistency with the lenders lenders. For example, if you had your Mortgage with TD, the penalty would be calculated differently than if it were held with First National.
Now, things seem to be rounding into form-at least when it comes to some consistency around pre-payment calculations. Lenders are now seemingly taking the time to clearly explain how this penalty will be calculated in case of an early payout of the mortgage.
As a borrower it is very important to look at these calculations carefully. You would be doing yourself a huge favour to run a few different likely scenarios prior to locking into a closed term fixed rate mortgage.
If you have any questions about pre-payment penalties or need help figuring out how your lender calculates them. Or even if you want to compare the calculations between lenders, feel free to drop us a line, we’re here to help!
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