RBC fired back with a pretty good rate of 2.99 % for 4 years... It didn't have the restrictions or limitations but it still had that
unfair penalty calculation.
the basis for penalties was to cover the difference between what the bank could lend money out for and what your rate is... Today's
penalty calculations do not work that way..
Read more on the heat being applied to the Chartered Banks
byzantine penalty calculations here, along with one lenders stats on the % of CDN's breaking mortgages each year (including year 1).
If / When a mortgage is broken early, the pre-payment penalty is rarely the 3 months interest so many expect, far more often it is the IRD — Interest Rate
Differential penalty calculation that is implemented.
CRA already, for the purposes of
tax penalty calculation, tracks exactly how much aggregate overcontribution you have at any given time across all TFSA accounts you have.
But while the
basic penalty calculation is pretty much the same everywhere (the greater of three months interest or the IRD) the IRD can end up being much higher than you'd expect because the comparison interest rates it uses can be manipulated to the lender's advantage.
So what is the difference in the IRD
penalty calculations worth to the four fixed - rate mortgage borrowers in the examples above?
In each case, we'll figure out the extra penalty charged by some lenders, and then calculate the reduction in their interest rate necessary to make the overall cost of their mortgage equivalent to the cost of borrowing from other lenders who use more
reasonable penalty calculations.
but those products are full of restrictions, limitations and inflated
prepayment penalty calculations... for our purposes, I'm only discussing quality mortgage products with no gimmicks or strings attached).
Note that in most cases,
the penalty calculation doesn't account for any decrease in the mortgage balance.
We found that the banks have shrunk or reduced the spreads between their Posted and Discounted rates on shorter - term mortgages over the past few years... and this has had a huge impact on Interest Rate Differential (IRD)
penalty calculations.
Hi Alexey, TD has not changed
their penalty calculation..
Interest rate differential prepayment
penalty calculations are a prime example.
We saw BMO come out with their 2.99 % NO FRILLS mortgage... (a product we wouldn't recommend to anyone due to it's restrictions, limitations and
penalty calculations).
If there is already an existing mortgage on the property and
the penalty calculation is too high or if the first mortgage has an amazing rate that is no longer available, there is a possiblity of adding a second mortgage or a home equity line of credit behind the existing mortgage but only to a maximum of 80 % of the value of the home.
The amount charged under
this penalty calculation is significantly lower than that of interest differential.
You will only be affected if you're looking to break your current fixed - rate mortgage with a big bank or credit union as
the penalty calculation has just been changed or if you are looking to qualify for a new mortgage.
2) If there is already an existing mortgage on the property and
the penalty calculation is too high or if the first mortgage has an amazing rate that is no longer available, there is a possibility of adding a second mortgage or a home equity line of credit behind the existing mortgage, but only to a maximum of 80 % of the value of the home.
Plus, I found
the penalty calculation was way off — by almost $ 15,000.
Banks slowly changed their own policies to allow for IRD to be charged... and today we have banks using an unfair
penalty calculation that does more than cover any potential loss... it makes the borrower pay an unfair amount!
That means your actual 5 % rate will be arbitrarily increased by 1.4 % to approximately 6.4 % for
this penalty calculation.