While we’re on a mortgage penalty theme, here are links to the newest prepayment charge calculators from the top banks:
- Bank of Montreal
- ING Direct
- Laurentian Bank
- National Bank of Canada
- Manulife Bank
- Royal Bank
- TD Canada Trust
These calculators were inspired by this worthy initiative from the Department of Finance.
If you play around with them, you’ll notice something. The penalties vary wildly.
In fact, after making some standard assumptions*, we calculated hypothetical penalties with each of the above calculators. There wasn’t even one instance where two lenders had the same penalty.
The results ranged from 3-month interest charges under $1,000 to IRD penalties of more than $4,000. The large banks were generally the most expensive.
In short, this underlines (again) the significance of looking deeper than just the rate when comparing lenders.
On a side note, some banks obviously put a lot of care into making these calculators simple for consumers. Others, not so much.
- The most intuitive: ING Direct & TD Canada Trust
- The least intuitive: HSBC
* Hypothetical Penalty Assumptions: We assumed that maturity is in two years (Sept 17, 2014), rates would stay the same, posted rate at origination was 5.24%, the borrower’s actual rate was 3.09% (fixed), the borrower took a 25-year amortization, and the original balance was $109,124 (leaving $100,000 to pay out).
Rob McLister, CMT
Rob, It is possible to update this post with a table showing the penalty for each lender listed?
What’s the best place to find historical posted rates, BoC?
Historical posted rates.
So why only the banks and not any of the broker mono line lenders showing their calculators? Could you edit the article to show their penalties as well, I.e. First National, Mcap, etc…
Hi BoC_Jim: The penalty amounts were left out to avoid one bank looking worse than another, by virtue of a $100-200 difference. Small differences have little meaning because they depend on the rates and assumptions. The takeaway was really this: Breaking a mortgage at the biggest banks can be far more expensive than at many smaller lenders.
Hi Arby: The “Code of Conduct” was something Canadian Bankers Association members agreed to. Non-bank lenders aren’t bound by it. That said, some have taken the initiative to develop penalty calculators on their own. Here are the calculators from:
I dont like picking on B lenders as they offer an “acceptable” product for many of our clients, but I dont mind “outing” brokers who do not have full knowledge of penalties when assisting their clients. Many B lenders, who might offer a rate of 1%, for example, above their posted rate, calculate the differential based upon a) the shortest term remaining – so also do many prime lenders- (ie if paying out a 3 yr mtge in month 13, with 23 mths remaining, the rate used is the (lower) 1 year rate, not the closer 2 yr rate and B)the rate comparison is to their then posted ( not posted plus 1% as the product was setup). On my clients $300K mtge,in month 13, that means a penalty of $11,000 if he chose a 3 yr; a penalty of $5,300 if he chose a 2 yr, or a penalty of $3800 for 3 months if rates went up enough. My concern is that I have heard agents recommend a 3 yr term for their clients because a) the setup fee is lower on the 3 yr, and say b)”with rates likely to go up from our current low rates, we wont be using the IRD calculation”. I would expect agents to provide more discussion on the penalties involved ( for both A, and B lenders) if their clients should find themselves having to sell early in the term
wow I can’t believe the client is expected to know what discount they received on their original mortgage rate to figure out their penalty? How on earth does this make it easier if they don’t know the answer to that?
Good point Shannon – I would recommend asking the client if they can locate their original mortgage docs – people usually keep those in a safe place. The discount will be itemized on those documents.
Fact is most people who “pick” B lenders are out of many options so penalties are NOT AS important to them as getting in the door, would you agree?
to jake re getting in the door
sorry for late response. Yes,I have a lot of respect for the new breed of B lenders who treat the consumer with respect, providing a variety of options, not offered in the “old” days. But because of those options, I’d like my advisor to be able to fully clarify to me the various adv and disadva of the products and terms, including getting in and getting out of the mortgage.