Class Action Lawsuit Filed Against CIBC Mortgages on Prepayment Penalties

Consumers hate mortgage prepayment penalties, largely because they don’t understand them.

CIBC-BankNow, there is about to be a high-profile challenge of how mortgage penalties are calculated.

CIBC Mortgages Inc., a subsidiary of CIBC bank, has just been named the subject of a pending class action lawsuit.

The intended suit claims that CIBC improperly calculated penalties for customers who broke their mortgages from 2005 to date.

The claim alleges that:

“CIBC applied terms and conditions to certain mortgage contracts to allow it unfettered discretion for calculation of mortgage prepayment penalties.”

“…the quantification of prepayment penalties applied by CIBC are in breach of the mortgage contracts.”

“Starting in 2005, CIBC started using language in its standard charge terms that was extremely vague regarding how its prepayment penalties would be calculated,” says Kieran Bridge, lead counsel on the case, in partnership with Siskinds LLP.

“That language, in legal terms, is called unenforceable. The net result is that they cannot collect penalties with a clause like that.”

(If you’re interested, you can see some the penalty language CIBC Mortgages has used here—on page 13)

“Even if [part of the language] is enforceable,” says Bridge, the penalties should be “capped at three months interest.”

In addition to the above, the suit claims that CIBC charges the future value of monies owed in its interest rate differential calculation, whereas it should “adjust for present value,” asserts Bridge. “They ‘present-value’ all of their own assets and liabilities. Any actuary or accountant will tell you, you have to present value or you’re not talking about actual value received.”

Bridge says the lawsuit applies to most CIBC mortgages, including many of those originated in CIBC branches and through its related entities, such as FirstLine Mortgages and President’s Choice Financial.

CIBC Mortgages Inc. is one of the largest residential lenders in the country. Bridge estimates it has about 500,000 mortgages on the books, of which 5-10%—25,000 to 50,000 people—prepay every year. (We’re unable to confirm those stats.)

In terms of value, Bridge estimates this case is worth “into the tens of millions (of dollars).” These types of cases are usually settled out of court, however, and don’t usually make it to full trial.

He adds that there is plenty of precedent with respect to mortgage prepayment contracts and “uncertain contract provisions.”

“You don’t start a class action lightly,” states Bridge, adding that his firm has “literally spent hundreds of hours” researching this case before filing it. (Funny enough, we noticed a Siskinds lawyer collecting evidence on Ellen Roseman’s blog back in July.)

Bridge is not a rookie in class actions. He says he brought another prepayment-related class action against RBC where the class members were “paid 100 cents on the dollar” for their claims, plus legal fees.

“That was a very favourable settlement. It’s about the best you could possibly do.” (Although, that case had a very different fact pattern than this one.)

This particular class action all started with a single parent in B.C. whose marriage ended. That individual had to sell the family home and was stuck with a $47,000 interest rate differential penalty from CIBC.

Bridge has reviewed other banks’ practices and hasn’t yet found other lenders that are calculating IRD penalties improperly.


Our take: Mortgage penalty language is notoriously cryptic at the Big 6 banks. It would be interesting to see if a court ruled that CIBC is calculating its IRD penalties in a materially different way than its peers. One thing is for certain, few banks go out of their way to make penalty calculations intuitive. Maybe this lawsuit will change their thinking.

(Incidentally, RBC is one of the best big banks when it comes to IRD disclosure. They outline the formula they use, try to explain it and base their penalty calculations on present value, according to sources at the bank.)

Mortgage penalties remain a top consumer banking complaint, according to the Financial Consumer Agency of Canada. The Finance Department was expected to have new penalty calculation and disclosure regulations in effect by now, but they have continually been delayed. Most would agree, it’s time for the government to stop dragging its feet and move the ball on that.


Note: As a reminder, it has not been established at this point that CIBC has done anything wrong with respect to how it calculates mortgage penalties. Also, the defendant in this case is CIBC Mortgages Inc., not CIBC. “CIBC” is used in a standalone capacity above only as an abbreviation.


Rob McLister, CMT

  1. I will guess/suggest that a court will accept penalties that are close in nature to actual losses incurred by the bank. However, if the penalty becomes punitive/unrealistic, then the lender will be out of luck.
    There is a legal term called Liquidated Damages, which are damages whose amount the parties designate during the formation of a contract for the injured party to collect as compensation upon a specific breach, such as early termination in this case.
    From Wiki…at common law, a liquidated damages clause will not be enforced if its purpose is to punish the wrongdoer/party in breach rather than to compensate the injured party (in which case it is referred to as a penal or penalty clause). One reason for this is that the enforcement of the term would, in effect, require an equitable order of specific performance. However, courts sitting in equity will seek to achieve a fair result and will not enforce a term that will lead to the unjust enrichment of the enforcing party.[1]
    In order for a liquidated damages clause to be upheld, two conditions must be met.
    First, the amount of the damages identified must roughly approximate the damages likely to fall upon the party seeking the benefit of the term.
    Second, the damages must be sufficiently uncertain at the time the contract is made that such a clause will likely save both parties the future difficulty of estimating damages.

  2. My fixed 5 yr Firstline mortgage has this same obscure IRD vs. 3 mth Interest penalty provision. Three weeks ago I was quoted the 3 mth penalty and now suddenly the the IRD has kicked in — effectively doubling the cost of my penalty. Now I’m trapped in a mortgage that is costing me 1/3 more in interest than the guy across the street is charging, and both of us know it.
    No need to feel sorry for me. I had a contract. What enrages me is the fine print terms of this contract aren’t clear at all. Nor did anyone (including my broker) point out this pre-payment shell game. (yes, I’m a first time buyer)
    Check out this wording from page 15 of my Firstline standard terms: “The prepayment charge will be the higher amount of the following two amounts, each of which will be calculated by us using a method determined by us from time to time at our discretion.”
    That isn’t a contract. This is larceny. It should be illegal. It has to stop. How can I participate in this lawsuit (even though I haven’t triggered the penalty yet)?

  3. My first time purchase was with Firstline and I paid that penalty 2 years in due to their games and their contract – you want 5 years, ok……looked at the contract when I got home, they signed me up for more than 5, my bad

  4. RBC is not better. In their conditions there’s a clause : “We can charge a fee, change a fee or add a new fee without notice to you.”
    How fair is that ?
    IRD penalties are double inflated with the “Posted-Your” rate too.
    You pay double penalty only because the BIG bank has Posted rate that allows her to claim that you have received a discount of 1 – 1.5%, even when your rate was the normal market rate at the time.
    And government knows this, but what they do ? Nothing.

  5. Information I post is my opinion, based on facts and my personal experience with RBC . So NO, I don’t need to read your legal disclaimer’s link at all.
    Experience speaks.
    RBC has this clause in the mortgage agreement : “We can charge a fee, change a fee or add a new fee without notice to you.”
    How fair is that ?

  6. Sorry, here’s the exact citation from my past mortgage agreement with RBC :
    “WE MAY, AT ANY TIME, CHANGE A FEE OR CHARGE A NEW FEE, WITHOUT NOTICE TO YOU”
    This is in section 7. Other fees and charges

  7. “The prepayment charge will be the higher amount of the following two amounts, each of which will be calculated by us using a method determined by us from time to time at our discretion.”
    Aren’t you proud to be a client of a BIG bank ? I am :)

  8. With all due respect, why are you talking about fees? This discussion is about mortgage penalties, not fees. All banks have fees that can change with little notice. That has nothing to do with the topic at hand.

  9. The difference “Posted Rate – Your rate” I talked about is about IRD, but some people are only writers, not readers I guess :).
    And why my citation is related to the topic directly ?
    Here’s why :
    “terms that was extremely vague ”
    “That language, in legal terms, is called unenforceable. The net result is that they cannot collect penalties with a clause like that.”

  10. Hey Freddy, your penalty change most likely because the interest rates dropped. If the fix rates go down you could go from a 3 month penalty to an ird calculation. I suggest look at the amount of interest you will pay in the next 6 months. If you are saving interest vs. ird penalty, then refinance.

  11. I am just thinking aloud… With a push of a button, I could go into my CRM data base and generate a letter to every client whose mtg I placed with FLM from 2005 onwards that has been refinanced advising them of this pending class action to see if they would like to register their name with Siskinds.
    That is an example of the value added service that a Mortgage Broker/Agent can bring to the table for their clients.

  12. So Koko = Mike? Maybe you should pick a name and stick to it.
    Your statement about RBC being “not better” than the others rests partly on your claim that RBC can change its fees whenever it wants. What I am trying to explain to you (tedious as that might be) is that RBC does not change its penalty calculation arbitrarily at will.
    Furthermore, this article states that RBC is better than other banks in “IRD disclosure” and your posts are unrelated to that. Your comments about “fees” have absolutely nothing to do with IRD disclosure and nothing to do with IRD penalties in general.
    You are right about one thing. Some people are only writers, not readers.

  13. If you take out a 5 year GIC at 4% and your bank phones you and tells you they are breaking the contract half way through and you are awarded an additional 3 months worth of interest at 4%, would you be ok with this if the going GIC rates are 2% for an equivalent term? I wouldn’t. The IRD collects the remaining interest due in the term of the mortgage.

  14. Mortgage specialist (how nicely identifying yourself that name is) … I see no reason to comment you anymore.
    RBC is no better for me. All BIG Banks have some discriminatory rules towards client. Period.

  15. I have e-mailed Kieran Bridge and he is interested to receive my mortgage terms and to check my case as I have paid IRD that I think wasn’t fair. I was with RBC btw.

  16. I will be doing the same! I also paid a huge penalty with RBC based on the “discount” they gave me initially. When I asked them if rates had gone up or down since I took that rate they refused to answer my question. That alone tells me they know they are in the wrong.

  17. The best cure for big banks is to have Competition and people to start being more Informed. Then the Big banks will have to fight for a mortgage contract, not take it for granted.
    When people refuse to deal with that bank after reading their term and stating they won’t be their client with such terms, then the Bank will reconsider when starting to loose business.
    Competition and Informed clients is the cure for all bad practices.

  18. The bank takes it as 4%, gives it to you at 5,5%, but in the mortgage terms they write that the posted rate was 6.7%.
    At the time you decide to pay IRD to break the term (even when staying with them) the IRD is inflated almost double because of that fake discount they wrote in the formula.
    Bank never loses. All we wish is to start to charge FAIR IRDs.

  19. Here’s the real case with RBC now :
    You take 4 yr fixed at 2.99%.
    In your mortgage term they write you have received 1.8% discount (as their posted rate is 4.79% for 4 year term now).
    Your friend takes a mortgage with ING at the same time (where there’s no posted and promo rates, there’s only one rate that’s close ,same or better than the BIG bank’s promo rate).
    So here’s the comparison :
    You both decide to break your mortgage and pay IRD.
    The IRD at ING is 40% lower. and on 300 K mortgage that a whole lot of money lower.
    This is my experience.

  20. The whole point of the IRD is that you should be paying a penalty based on current market rates for the same term you have remaining. Here’s the problem: Posted Rates.
    With lenders (Big Banks) that have posted rates, they can fiddle around with posted rate discounting. Example:
    In 2008 you took a 5 year term at 5.49%. At the time, posted rates were 1.6% higher, at 7.09%.
    You want to break your mortgage. Your penalty is the same calculation as the savings.
    2 year term (posted) is 3.85% (RBC website). Minus your 1.6% discount = 2.25%. NOBODY on the market is offering a rate of 2.25%, because they aren’t offering discounts of 1.6% off posted anymore.
    the only way to get around this (as pointed out above) is to use lenders like ING, etc who don’t use posted rates and can’t arbitrarily change the way they discount rates to make the penalty and savings lopsided.
    IRD penalties should equate to the savings if you took a brand new rate for the same term remaining. So, in the example above, if 2 year rates were offered at 2.25%, this wouldn’t be such an issue.

  21. People need to understand the contracts they are signing and what the terms mean…if they don’t understand, they should have a lawyer review and explain it in laymens terms.
    This is a simple case of buyer beware. We expect the businesses we sign contracts with to fulfill the terms within it but when it comes to the consumer fulfilling the terms of the same contract, it becomes a class action lawsuit.
    If the IRD penalties were in fact calculated differently than disclosed, then all the power to the suit. If not, the bank should not be punished for ignorance.

  22. All major banks have the same IRD policy in the sense that they subtract your discount from the current posted rate. RBC is not unusal in that respect.

  23. I am about to pay an IRD penalty to CIBC to move my mortgage to RBC. Last year, the penalty was $29,000 and I was told that the discount I received when I entered into my mortgage was a factor. This year the IRD penalty is $6,600 and there has been no mention of the discount. Go figure!

  24. Saying “buyer beware” or “banks rely on ignorance” is the typical fallback of bankers, lawyers and brokers who profit from the status quo. If I was your client and you told me this, I’d walk out the door.
    I simply cannot afford to parse 47-pages of “standard mortgage term documents” filled with convoluted language and slippery disclaimers like I pointed out above. The onus should be on the brokers to point out the most common risk areas, the lenders to write clear terms, and for all to be transparent with their clients about the IRD charges and how they calculate them.
    Saying all the banks do it is also no excuse. That makes even more important for CMHC and govt regulators to step in.
    In the end, it’s Firstline and CIBC that loses, because I will never do business with them again, and I will be damn sure to tell everyone I know how I was treated — and however small that impact has – it will have consequences.
    I’ll be on the sidelines cheering for this lawsuit. Where can I contribute?

  25. Freddy, I agree it is the responsibility of the broker/bank rep and the lawyer to explain these. You sign your documents with both of them. In most cases, the lawyer is an expense of the consumer and they should be explaining some of these more commonly controversial statements that are laid out in commitments. No document should ever be signed that does not specify how something is calculated or it is at the discretion of the lender…this basically states the lender can do what they want, when they want.

  26. RBC says : “WE MAY, AT ANY TIME, CHANGE A FEE OR CHARGE A NEW FEE, WITHOUT NOTICE TO YOU”
    here I agree with you : “No document should ever be signed that does not specify how something is calculated or it is at the discretion of the lender…this basically states the lender can do what they want, when they want.”
    but I can also add : No lender should be allowed to add such clause in any agreement. And whoever does must be fined by regulators !

  27. This high jacked thread (15+ of 37 posts) by Mike, aka Koko, and his multiple personalities is a nightmare!
    Anyways, what is interesting to me is the lead counsel saying “Even if [part of the language] is enforceable, the penalties should be capped at three months interest”
    Really? good luck with that. We can probably all agree on the need for better IRD penalty disclosure but let’s be real, a contract is a contract and penalties/damages will always apply for those that choose to break them.

  28. This high jacked thread (15+ of 37 posts) by Mike, aka Koko, and his multiple personalities is a nightmare!
    Anyways, what is interesting to me is the lead counsel saying “Even if [part of the language] is enforceable, the penalties should be capped at three months interest”
    Really? good luck with that. We can probably all agree on the need for better IRD penalty disclosure but let’s be real, a contract is a contract and penalties/damages will always apply for those that break them.

  29. bankers usually never say anything in support for consumers, or acknowledge their misleading practices and that is normal, they are BANKERs and benefit from it :)
    And obviously takes personal issues with people that don’t applaude him. So sad for him ..

  30. You say : “We can probably all agree on the need for better IRD penalty disclosure but let’s be real, a contract is a contract and penalties/damages will always apply for those that choose to break them.”
    Here we start talking real, it’s optimistic how you start using “probably”, but the point “to be real” is not what the consumers are 100% in fault for. Misleading practices must be stopped by regulators and BIG banks that have done this must be fined for example. More regulation is the key, regulation that protects customer from those misleading practices that cost thousands of benefit for the bank and lost for consumer.

    It’s amazing how you count number of our posts but still don’t understand what’s written in them :)

  31. I’m with Banker in an ivory tower. There are two surefire ways to lose credibility on a forum, apart from being plain wrong:
    a) Talk too much
    b) Use multiple pseudonyms

  32. Hmmm…It would seem lawyer’s are also at fault since it is also their moral, ethical,and legal responsibility to explain to their clients what they are signing. I wonder how many mortgagors get on their lawyers about this once they start remembering what their legal fees were and how little time was spent in a lawyer’s office discussing their mortgage. C.Y.A. at work? I wonder if the real estate lawyers are getting behind on their yacht loan or BMW payments?

  33. Once upon a time, I used to work at a Bank that would not let you out of your mortgage unless there was an arm’s length Sale PERIOD and if the IRD was greater than the 3mth penalty, the IRD was applied based upon the interest differential on the posted rate for the term remaining against the contracted rate you were paying. Simple… in a simple world!
    Now that very same lender will let you out early without an arm’s length Sale, however they have made significant changes to how they calculate their penalties. Now, whatever discount you received off posted is now applied against the posted term for the closest term remaining in order to calculate the IRD penalty. Simple… not so much, and yes in most cases it will yield larger IRD penalties, but we are no longer in a simple world!
    If I had the power, I would like to see the penalties spelled out clearly for all to read and understand, (Like we are in the 6th grade) They (the lender’s) shouldn’t all have to follow the same calculation formulas, but they do need to be clearer about the penalty, so we can decide ahead of time if choosing one lenders mortgage over another is worth the potential pitfall associated with breaking it early! Competition for mortgage business will dictate how onerous these IRD penalties will play out in an open market.

  34. “Once upon a time, I used to work at a Bank that would not let you out of your mortgage unless there was an arm’s length Sale PERIOD”
    BMO still has that clause. And the rate isn’t even competitive. YUCK!
    Actually, the formula to calculate the IRD is relatively simple. It’s the lack of standardization among lenders which is creating the mess. And also the lack of awareness by consumers. Brokers will save clients a lot of headaches in the long run by thoroughly going over the penalty disclosure and explaining how the IRD works and how it’s tied to rate fluctuations. This way the client can make a more informed decision about whether locking in for 5 years is right in the first place.

  35. IRD penalty is **NOT** evil if applied fairly. Here’s an example that more can relate to:
    I rent my house to you for a one year lease for $1800/month. 6 months into the lease, you break it and move out. The rental market is now softer and I am only able to re-rent the property at $1500/mo. So the economic impact on me caused by you breaking the lease is easily calculated as $300/mo for 6 months or $1800 – we’ll call this the RRD or Rental Rate Differencial. [If, as a reader, you feel I shouldn’t be able to charge you the RRD, then don’t enter into contracts!]
    More the issue in this post is what “re-rent” rate CIBC Mortgages (and other banks) use in their calculations. $1500 in the example is actual so fair. But what if CIBC through loose wording chooses an advantageous re-rent rate of, say, $1000 and charges you a RRD of $800×6=$4800? Not fair. Standardization of the calculation parameters is the heart of the matter.
    Chris Richards
    Mortgage Intelligence

  36. What if it cost’s $500 in paperwork to break the lease and another $2,500 in advertising, legal costs and paperwork to secure a new tenant?
    Would the penalty be fair then?

  37. So if you had money in a GIC and the bank came along and said “Joe Smith broke his mortgage contract so we will have to decrease your interest rate.” you would all be ok with this? How much of a discount did you get on the posted rate when you took out your mortgage. It is a contract people, and it was broken! As a shareholder of more than one bank, I want there earnings to be good. They are not a charity. Do you have a problem with Nike’s profits?

  38. It’s funny. When I went to apply for a mortgage at Coast Capital Savings here in BC, I asked 3 people at the bank for a copy of their standard mortgage terms and conditions — none could find a copy. Of course this carries the most important information of the mortgage, but the first time I could read the terms was after I had already had paid to have my home appraised and paid the lawyer. Of course, by that time it’s a rush of paper work and most people feel pressured to just skim the documents at best. It turned out their IRD was pretty standard, but there were some tricky conditions, such as, the mortgage holder has to do have prepayments 30 days in advance to reduce the early payout penalty. Of course, no one including the lawyers pointed out these details.

  39. Any loan officer should have been able to provide a copy of their terms and conditions upon request.
    I am curious, did they tell you if they issued colateral or conventional mortgages?

  40. It wasn’t mentioned that it was a collateral mortgage, but I had brought it up myself in discussions as I already knew what type of mortgage they offered. Other things I didn’t know until signing the final documents is that they register the mortgage as Unlimited $(at least mine was). They said they can modify to a specific amount at a later time if I wanted.

  41. I started in banking in 1967, with HSBC in Hong Kong for 7 yrs, came to Canada in 1974, with CIBC for 15 yrs, RBC mtge spec 12 yrs, BMO mtge spec 6 yrs, and since Sept 2006 as a mtge broker.
    In the old days, lenders quoted very little difference in the posted rates for the various terms, e.g. 5 yrs 6.50%, 4 yrs 6.25%, 3yrs 6.00%, 2 yrs 5.75%, 1 yr 5.50%. Penalty for early payout was and is still 3 months interest on remaining balance or the interest differential for the remaining term.
    When they worked out interest rate differential, it was not too much higher than the 3 months interest penalty if rates have fallen. If rates went up, there was no int diff, only the 3 months int penalty.
    Since a few years ago, lenders changed the way they quoted their mortgage posted rates. e.g. 5 yrs 5.29%, 4 yrs 4.79%, 3 yrs 4.39%, 2 yrs 3.89%, 1 yr 4.30%
    By showing a large drop in the posted rates from the 5 year down to the 4 year and less, the net effect is that the interest rate differential can become quite usurpious.
    Let me give you an example.
    400,000 5yrs term posted 5.29%
    disc’t 1.70%
    borrower pays net 3.59%
    2 years later house is sold, 3 years left
    bal 370,000 3 yrs posted 4.39%
    Lender uses the same discount that was previously given to calculate the interest rate for the remaining term to calculate the interest rate differential
    Therefore 4.39% less 1.70% = 2.69% for the remaining 3 years term.
    Of course, the int diff now becomes 3.59% – 2.69% = 0.90% for each of the remaining 3 years.
    bal 370,000 x 0.90% = 3,330 x 3 yrs = 9,990 int diff penalty
    The regular 3 months int penalty should only be 370,000 x 3.59% = 13,283 divided by 12 months x 3 months = 3,320
    I don’t know why nobody has challenged the lenders about this before. Seems like they all agreed to do this at the same time, which is against the Competition Act.

    1. You’re one of the few people I’ve seen explain the problem properly which is the artificially high spread of posted rates.

  42. My RBC mortgage rep quoted me 3.89 per cent on a five year mortgage for $120,000. I negotiated it to 3.75. With 26 months to go I would like to pay off my mortgage and would be quite willing to if the IRD wasn’t inflated by a phantom posted rate of 5,25 I am now hearing about.
    RBC is going to lose a 40 year client. Their reps appear embarrassed by this practice, and I am left to wonder why if the Feds want debt paid down they allow this manipulation of fanciful posted rates.
    GDL

  43. My bank never explained the concept of an IRD to me when I took out my mortgage. Now I wish to sell my home and have found out I will have to pay a hefty $30,000 penalty on my mortgage!! I wish John Olaes was my banker when I took out my mortgage as he has done what every other banker seems to have been unable to do and that is explain in laymans terms how the IRD and/or 3 month interest penality is calculated. If the lenders took a few minutes to explain this to their customers before they signed on the dotted line we would not be having these discussions. Everything would be clear and we would all know and understand exactly what we were getting into or opt not to get into. In my opinion the onus should be on the banks to clearly explain in laymans terms exactly how an IRD is calculated. It should not be up to the consumer to try and intrepret the legal ease used in the banks mortgage contracts. I believe the banks approach to calculating the IRD is predatory ( taking advantage of the fact that most people have no idea exactly what the $ penalty would be )and unethical, not to mention the rate setting by banks according to another blogger appears to be in contravention of the Competetion Act (aka Price fixing) which I am pretty sure is illegal. This is not the type of business practice I would expect from a bank nor should it be tolerated.

  44. John Olaes – I as well spent numerous years with CIBC and am now a mortgage broker. I’ve always understood the IRD and explained the two possible different penalties. Now here I am needing to get out of my own mortgage – which is at a higher rate than I am now offering clients, yet I have a very high IRD due to the so called “discount” they gave me when I fixed my mortgage. I had never heard of this scam, nor had I ever explained it to someone else. I was not explained it by my co-worker that fixed my mortgage for me, nor by my lawyer. I am almost positive that the employees at the local branch do not understand the IRD and even the specialist at CIBC’s 1-800 mortgage line could not explain it to me. What can be done to change this????

  45. Where are the answers? I see complaints but is there a resolve yet or still pending as of May 2016?

  46. I am reading through the comments but it’s unfortunate that none of the comments I have read understand the Posted-Rate IRD penalty. The commenters seem to think that the high posted rate is the problem. It’s not because a high discount is applied in the IRD penalty.

    Here is the problem with Posted Rate penalties: Posted rates have an artificially high spread from year-to-year. It’s the high spread that creates the large penalties. Let’s assume you can never be approved for posted rates but the posted rates where this:
    1 year: -2%
    2 year: -1%
    3 year: 0%
    4 year: 1%
    5 year: 2%

    And you take a 5 year term at normal bank rates. Then you break your mortgage with a year left. Well that big spread in posted rates is what will create a 4% penalty for the remaining year in your term (4% of your mortgage)

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