A friend who is a RE agent reminded me when taking a new mortgage or refinancing, to always ask the banks if there is any penalty associated with transferring a mortgage before it is due or when selling.
Correct me if I`m wrong - isn`t it kinda standard, meaning penalty pretty much the same with all/most banks, i.e. interest left to pay till end of term if sells early. hence not really an issue nor even negotiable with major banks?
My experience so far has been with big banks only... perhaps it is the smaller banks/private loans that you really need to check carefully(?)
QUOTE (investmart @ Jun 17 2009, 07:39 PM) Hi All,
A friend who is a RE agent reminded me when taking a new mortgage or refinancing, to always ask the banks if there is any penalty associated with transferring a mortgage before it is due or when selling.
Correct me if I`m wrong - isn`t it kinda standard, meaning penalty pretty much the same with all/most banks, i.e. interest left to pay till end of term if sells early. hence not really an issue nor even negotiable with major banks?
My experience so far has been with big banks only... perhaps it is the smaller banks/private loans that you really need to check carefully(?)
THANKS.
It really depends on the type of mortgage product you have. If its a closed fixed rate, the penalty is the greater of 3 months interest or an IRD (whichever is greater). Becuase current rates are so much lower than the going fixed rates a couple of years ago - IRD`s can be huge. This is why it is so important to coordinate your exit strategy with the term of the mortage that you choose. If you know you`re selling in 3 years - why would you take a 5 year term?
The VRM/ARM usually comes with a 3 month interest penatly and the open mortgage or HELOC has no penalty. As above, the unpleasant surprises usually come with the fixed rate products.
QUOTE (investmart @ Jun 18 2009, 10:02 AM) Thanks Peter, Great input as usual. Just another advantage to taking VRM.
In today`s rate environment - its unlikely (though not impossible of course) that if you choose a fixed rate, an IRD would apply. for that to be the case, fixed rates, when you payout your mortgage would have to be lower than what they currently are. No guarantees of course, but if those who opted for fixed rates at 3.79% to 3.99% go to payout early, they`d likely also be looking at a 3 month interest penalty (the bank would probably be glad to get thier money back.......)
QUOTE (TerryKruse @ Jun 18 2009, 07:51 AM) We have a $25k penalty for one of our mortgages. Not really standard.
It made me aware that I really should check the payout penalty on all subsequent mortgages.
Cheers, Terry
The mortgage is with one of the smaller banks and was our first investment property so we didn`t question much. It is also a fixed mortgage and at 5.79% for a 5 year term. I have always preferred a variable so I should have insisted on this when we got this mortgage.
We have another mortgage at 1.75% for a 3 year term. To bad this one is only 3 years. It is a fantastic mortgage.
If the payout penalty is too large, talk to the mortgage company about porting the mortgage.
Usually if you transfer the mortgage over to another property (port the mortgage) there is no penalty. You just keep the same mortgage with them until it expires.
You could save a lot of money by doing it this way if you decide to sell (and buy another property around the same time).
QUOTE (CanadianMortgageTeam @ Jun 18 2009, 10:28 AM) In today`s rate environment - its unlikely (though not impossible of course) that if you choose a fixed rate, an IRD would apply. for that to be the case, fixed rates, when you payout your mortgage would have to be lower than what they currently are. No guarantees of course, but if those who opted for fixed rates at 3.79% to 3.99% go to payout early, they`d likely also be looking at a 3 month interest penalty (the bank would probably be glad to get thier money back.......)
Also remember, CMHC fees are portable as well. So if you port your mortgage and add additional funds, the amount of CMHC fees already paid does not have to be paid again.
Greetings.We have a mortgage with Bridgewater and they calculate the IRD based on the difference between your interest rate and the Canadian Bond Yield. Since the Bond rate is currently 2.44 and our interest rate is 5.2, our penalty would be extreme.
This was not how the initial mortgage documents read. This term appeared in the 50-page document that we signed under the time constraints of our now ex-lawyer rushing us out of his office so that he could start his Christmas holidays.
Bridgewater was 10 days late in getting the documents to the lawyer, and the seller of the property had already threatened to cancel the deal and keep our $10,000 deposit, so we read as fast as we could. And since we naively thought that this term would be the same as what we signed in the mortgage commitment, we didn`t catch the three magic words "Canadian Bond Yield."
(Incidentally, once we discovered this we attempted to contact the lawyer via phone, email, and fax with no response.)
On the bright side, once a 5-year mortgage reaches its third year, the penalty often reverts to 3 months of interest. So unless Bridgewater has another wrench to throw at us, we will be happy to pay that penalty and support a different institution.
So Peter, if you break the mortgage 2months and a week before the mortgage is up for renewal for example do you pay the interest for 2 months and a week or do you still have to pay a minimum 3 month penalty? Our mortgage is with ING and we`re faced with this dilemma right now. is it true that they legally can`t charge us for 3 months if we only have 2 more months to go?
Im being offered 3.77% blended rate for a 3 yr mortg no penalty right away for (our mortgage coming up for renewal on Dec 2nd) by ING themselves
However Iv been advised by our broker that its better to wait till Sept 09 as he has a pre-approval for us at 3.75% which expires end of Sept so we should wait till then and move over to the other lender offering 3.75% for 5 yrs. I am currently at 4.69%. We will have to pay discharge and penalty fee to do so though.
