First off – hope you’re all doing well. I know #COVID19 is not the best time for everyone out there. As the data keeps coming, things seem to get better, so let’s keep being smart and responsible!
In the meantime… a rant.
Why the hell are mortgage penalties so wildly different for the exact same rate, same term, and same mortgage balance?
Because mortgage penalties make banks money and because people mostly don’t care about them until it’s too late.
Here’s an example for you to consider when you dive deep into your mortgage contract.
A client reached out to me because they read my posts on @twitter. OMG it works! But that’s besides the point.
They owe $712,000 to #HSBC, one of the worst offenders in the mortgage world but also one of the lowest rate providers. By offenders I mean: Their process sucks and their penalties are terrible but hey! You get a good rate! LOL
At the time the rate was the best – 3.19%. Other rates were 3.39%.
Today their rate is only 3/4% higher (that’s a LOT) than what they could get. So we discussed #breakingupwiththeirmortgage
Lo and behold the penalty to break is $30663. The rate savings would still cost them $12000 so even though the rate could be 2.3% today, it still didn’t make dollars and cents.
Now let’s say they took my recommendation and went with a lender like MCAP. Or, First National. Their penalty would’ve been $6008. And, today, they would’ve saved $12888 over the next three years.
If you think HSBC is bad, take a look at my good friends TD Bank. Same rate, same term, same balance. Penalty? $38, 592. THIRTY EIGHT GRAND to break a mortgage contract. Imagine if these people were breaking up – they would’ve had no choice but to pay that amount. Isn’t that…. insane?
The other big banks? Only Scotiabank comes in at the lowest – $20562. CIBC $30K, RBC $30K.
So what I’m getting at is – I’ll say it time and time again – #yougetwhatyoupayfor
And in mortgage world, if you want the best rate, be prepared to pay for it if you haven’t timed the market well. By timed the market I mean – went fixed when you should’ve gone variable OR went fixed with a lender that makes it impossible to break because the penalty is so huge.
But, don’t listen to me. Ask my client how he feels now being stuck in this mortgage for the next 3 years and what he could’ve done instead: Paid his mortgage down faster.
(And here’s the real kicker. Wanna bet $1000 that at the time of closing there was no mention of the penalty at all? Like, zero? Wanna bet another $1000 that the HSBC mortgage “advisor” didn’t even know how the penalty is calculated?)
Don’t. I’ll win. I don’t want your money. I just want your open mind when I tell you about penalties.