January 5 2016 Posted by Siemens Group
This article in today’s Toronto Star hits on a point we have been warning our clients about for the past few years. The major banks changed their calculation on how they calculate the pre-payment penalty to include the rate discount you received on your mortgage rate. This change has resulted in disproportionate penalties compared to the Mono-line lenders who do not have a posted rate.
It is very important that these potential costs be taken into account when originating your mortgage. Often clients are only looking at the rate and they are not looking at the additional expenses they could be exposing themselves to. Life happens and although you may not have the intention to sell or refinance your mortgage we believe you should prepare yourself for paying out the mortgage out early. Life happens and it would be horrible to learn that you cannot make the move you need to because of these very high penalties.
At the very least a borrower should have the discussion on what the penalty may look like so that they are fully informed on the possible penalties.
Also, we have not seen many lenders consider the unused prepayment options when quoting the penalty, so I would caution against assuming you will get the benefit of the lower penalty.