Bank Penalties Beware – Know Before You Renew!
With 80% of all mortgage in Canada facing maturity by 2026, you really need to know the facts behind the rate offered by your current lender before signing back a renewal offer. This is where I come in – you have many options and renewal time and I’m passionate about saving you money today and into the future.
If you are considering taking a Fixed Rate mortgage from one of the Big 5 Banks or even a Credit Union, make sure you know about how IRD penalties are calculated in case you ever need to (or want to) break your mortgage before the end of your term. It can cost you tens of thousands of dollars and seriously limit your options down the line.
An IRD (Interest Rate Differential) is the difference in your contract rate vs interest cost of the term you have remaining at the current rate. If the current rate is lower than your contract rate at the time you break your mortgage, you will be charged an IRD. Penalties are particularly nasty when charged by Banks and CUs. Why? They calculate them much differently than non-bank (otherwise known as Monoline) mortgage lenders. Typically, penalties from non-bank lenders are approximately 25-50% of what other multi-faceted lending institutions charge.
Banks offer a Fixed rate based on a discounted posted rate. They apply that discount when they calculate penalties, making the spread between the contract rate and the current rate even higher. Monolines use apples to apples and don’t mess around with posted rates and discounts – all this does is increase the amount of a penalty charged and only Big Banks and Credit Unions do this.
As you can imagine, when sourcing your mortgage, the conversation needs to go beyond the rate because there is the rate you have going in, and the rate you have going out – always know your options and know the facts before committing.
If you would like a thorough analysis, consultation or a second set of eyes to review your renewal offer, I’m always here and happy to help – no obligation. My good, honest advice is always free.