An interesting statistic that just came out from Stats Canada is that Canadians move, on average, every 3.3 years. At first blush, this seems a lot of moving doesn’t it? Some people live in their very first  home until they retire, but this is the exception. Tracy and I bought in Fergus this past summer, and this will be our second move in 7 years. When I think back over my adult life, I have in fact moved 10 times in 35 years, having lived in Burlington for 14 years alone. So there you go, I moved every 3.5 years.

We have had a variable rate mortgage since 2003, which means I had a “fixed” rate mortgage for 8 out of 10 moves. This translates into breaking my mortgage AND PAYING A PENALTY 8 TIMES to the bank. That’s a lot of money paid to mortgage lenders during the term of my mortgages, and estimate that I paid in excess of $20,000, money that could have stayed in my pocket, had I had a variable rate mortgage all along. A recent study by York University states that based on data collected from 1950 to 2007, Canadians 90% of the time saved an average of $20,630 more on a variable rate mortgage vs. fixed rate, over 15 years for every $100,000 borrowed. So with a $200,000 mortgage the savings would be more like $40,000 +. Wow!

You see, when we move unexpectedly during the term of a fixed rate mortgage, we can get hit with the ‘Interest Rate Differential’ or IRD penalty which can be very significant. This is the difference between your contract rate and market rate for the remaining balance of your term. We have seen them in excess of $20,000, and in one instance, the people had already sold and bought ‘firm’ so they were stuck with a huge penalty. Fortunately they had the equity cushion to pay it, otherwise they would have been in jeopardy of completing their purchase and could have been sued.

Why pay a sizeable penalty when you don’t ‘have’ to on a fixed rate mortgage when you only need to pay 3 months interest(not 3 full payments) on a variable mortgage? Folks, most of us do not expect to move as much as we do. But ‘LIFE happens. People change jobs, get married, get divorced, move up, move down, get ill, get injured(losing mobility) and people die. AND we pay a hefty premium in order to have ‘peace of mind’ with a fixed rate mortgage.

The fact is, the banks prefer to sell fixed rate mortgages because they make more profit. whenever people cghoose a variable, the banks tell them to ‘FIX FIX FIX’ or ‘LOCK IN’ for fear of rates rising. isn’t it interesting that the banks always stick to this line, and isn’t it interesting that they, along with the media NEVER tell us that rates will go down. the banks motivation is to make more profit, end of sentence. We are here to save you money, to educate you and to guide you. and consider this. when you come to us first(before purchasing) to evaluate your situation and get you new financing, we always address to penalty issue. from our experience in this business, we have concluded that the vast majority of people do not give this any thought, and from what we have seen, it appears to be something the banks do not readily address either. this but one reason why our services can be invaluable.

Another new statistic reveals that 1 in 3 Canadians(33%) now choose mortgage brokers to get them the best solution. So as you can see, your choice of mortgage provider should involve much more than interest rate alone((even though we offer the best rates out there) but with mortgage ‘terms’ that can save you tens of thousands of dollars over the longer term. Part of the reason for the rapid growth in our industry, we belive, is also the fact that the consumer is more sophisticated than ever. Please call us for your next mortgage change, and experience the difference.

Restrictions contained in the the fine print of your mortgage could cost you thousands of dollars. Often these restrictions are contained in the fine print and often homeowners are not even aware of these restrictions until they find the need to break their mortgage. This is why it is so important to talk to the Price Team to make sure you are protected when it comes to the biggest investment of your lifetime. If you have obtained your mortgage directly from the bank, most if not all examples below have not been mentioned or explained to you. Since we look out for your best interests, we not only do our best to steer you away from lenders and mortgage products that are potentially onerous, but we explain any important ones to you.

Here are some examples…

Can’t break your mortgage before your term is up or in the 1st three years.

A penalty surcharge of 1% for mortgages broken in the first 12 to 36 months.

Re-investment fees on top of mortgage penalties.

Interest rate differential(IRD penalties based on an onerous bond yield calculation.

IRD penalties on variable rate mortgages(usually only apply on fixed)

IRD penalties based on the costly posted vs discounted rate fomula.

Inability to port unless purchase and sale take place on the exact same day(difficult to do)

No guaranteed rate discount if you switch from variable to fixed rate.

No refinances in the 1st year.

No fee switches for transfer eligible mortgages.

Amortization limits of 25yrs

minimum amortizations of 15 to 18 years.

Restrictions on converting from fixed to variable in 1st six months.

No ability to break open your equity line of credit without a penalty.

No prepayments within 30 days of discharge

Inability to port across provincial lines

High administration fees for, porting 100% clawback of cashback if mortgage is broken before maturity

Requirement of full banking relationship with the lender.

No lump sum pre-payment privileges

No annual payment increase

Pre-payments restricted to one day in the year

We think it’s time for the government to step in with regulations on IRD charges and full disclosure is needed for homeowners to understand. While no one intends to break a mortgage during the term, dramatic rate changes, divorce, sale of house, job transfers, finding a better home, sickness, injury, job loss, investment opportunity, and even bad neighbours can cause someone to decide to break their current mortgage. When you do, we’re here to help you get the best rate and mortgage terms possible.

Wouldn’t you rather have an expert mortgage broker be vigilantm on your behalf, than be in the dark, only to get a rude shock in future when you break your mortgage, because you arranged it yourself?

Quite frankly, it’s long overdue. Our mortgage industry has been pushing for years for banks to clearly define their penalties. Finally a few lenders are now putting their penalty clauses in their commitments but most have them contained in a 30 page mortgage charge which is given at the lawyer’s office(which clients never read) as the mortgage is closing.

The federal government in its wisdom will now make it mandatory for full disclosure for penalties.

We see it first hand because of the number of mortgages we handle from many different lenders. Lenders now can pretty much do what they want when lawyers asked for a discharge from the current mortgage. And there is no recourse. There are two penalties for paying out a mortgage early. One is the 3 month interest that applies if the new mortgage rates are higher than the existing or the IRD or interest rate differential. Simply put, it’s when rates go down the IRD goes up. Here’s how it works. First take the principal balance, multiply it by the difference between the previous high interest rate and divide by 12. Multiply that number by the remaining months on the mortgage term to get the approximate IRD payment owed. Banks do not even have to tell the client how the IRD was calculated in the first place so there is no way of telling if there was a mathematical mistake or not and so basically clients are at the mercy of the mortgage company they are exiting from.

The Financial Consumer Agency of Canada has receivede over 100 penalty related complaints since the beginning of the year and is investigating some of them. In many cases, the banks are going way too far because they are making their calculation on the basis of what was the posted rate was at time of the mortgage and not on any discounted rate that was agreed upon with the customer. Last week we had this happen to one of our clients. With only 12 months remaining on his mortgage the bank is charging him 5,000 dollars for breaking his mortgage. This is unfair and wrong and we urged our client to file a complaint.

This is one of the major benefits of a variable rate mortgage, the penalties are a simple 3 month interest so there are no games being played. The Feds are making changes so that banks are forthcoming about their penalties. Call us for the best mortgage advice and a free analysis of your mortgage situation. Our best 5 year fixed rate is 4.34%. Best variable 1.7%