What??? You might be thinking…they must have had a special mortgage or the bank made a mistake. Nope. They are regular folks with a three bedroom bungalow. After buying and selling a few homes, this was their third mortgage with Industrial Alliance.

When I posted this info on Facebook, a neighbour responded by saying “I know! I was trying to get a better rate and it would have cost me $7000 to break my mortgage only to get 1/4% better. No thanks!!!”

After talking with my client, he told me that he was told that this is a new bank policy and that a lot of other banks are now getting on board. Have you heard of this? I haven’t. Even after reading the fine print of his mortgage agreement, it still wasn’t clear why it was so high. There wasn’t a formula included in the agreement and when he called the bank and after speaking to 3 people, none of them could explain it to him properly. He said that they all acted really strange on the phone, like they knew that this was immorally unjustifiably incredibly high.

He was told that if he broke his mortgage three months ago, his fees would have only been about $3600. Apparently the formula includes the interest rate. Where you really get penalized is when the interest rate that you have locked into is lower then prime.

How could this happen? Why wasn’t this explained to him since he’s been doing so much business with them…and why wasn’t it grandfathered in? I don’t have the answers and so far, neither does he or anyone at the bank for that matter.

My job is to help facilitate buying/selling a home for my clients. It is suppose to be the most important money decision of our lives, so we are told. I find the product and facilitate the sale, making sure all legalities have been met. Legally I have to comb through the offer and make sure that my clients understand 100% of it. I have never, ever heard of a banker or mortgage broker doing that with any of my clients.

The banks have the most important job. They are the one’s lending the money. With what I do, if my clients aren’t satisfied, there are a lot of avenues to take for legal recourse; organizations in place to protect the buyer and seller. What do you have with a bank if you aren’t satisfied? What can my clients do? Not pay it? Take the bank to court? I’m not sure, however am interested in knowing.

This is part one of the story. As time goes on, and after much investigation part two will flourish. In the meantime, READ THE FINE PRINT. Have your mortgage broker and/or banker read through your whole agreement with you so you understand it 100%. Ask questions and know the formula if you need to cancel your mortgage before you sign, so you are well prepared for the unexpected.

PART II OF THE STORY

So after talking with a mortgage broker, nothing has changed. These supposedly new policies have been around for over 25 years and are part of our federal law. Why my client was told all this hooplah about new policies and why couldn’t anyone answer him properly, I don’t know. What I do know is that unless the rates go up in the next two months, he will be paying the $11,000.

To break a mortgage there are two formulas the banks use and whichever is higher, is the one you will have to pay.
#1. Three months interest
or
#2. Posted rate minus your rate times the number of days left on your term. Posted rate means without any discount. Walking into a bank and not negotiating the rate (apparently this is where the banks really make their money).

So because the interest rates are so low, just about everyone in the past 3-5 years who are looking at breaking their mortgage will probably be paying with formula #2, unless of course, you are getting near the end of your term. The people who have only had their mortgage for a short period of time are the ones who will be paying hefty fines. So I learned something new today. Hope you did too.

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Today people have access to different types of credit that can be secured by a mortgage. Faced with this diversity, mortgage lenders will only discharge the mortgage on the immovable once the seller has satisfied all loans and other forms of credit granted and secured by the immovable in question.
For example
An owner has an immovable worth $210,000 which he acquired using a $190,000 loan secured by a mortgage. When the

owner got his mortgage, the lender offered him a $10,000 line of credit and a credit card with a $5,000 limit, also secured by mortgage. The total amount secured by immovable mortgage is $205,000.

The notary will now have to obtain a certified statement of account from the mortgage lender in order to discharge the mortgage. To do so, all the debts secured by the immovable must be repaid. It is easy to see the difficulties that can be created if the sale of the immovable does not cover all the sums due under the various types of credit.

The new rules imply that unless this certified account statement is received showing that all sums due have been repaid and including a firm commitment to sign the discharge of the mortgage within forty-five (45) days following repayment of the sums indicated on the statement, the notary will automatically withhold the funds until the discharge of the guarantee(s) is published. In concrete terms, this means that the transaction cannot be concluded until all sums owing have been repaid.

Duties of the agent
The ACAIQ therefore recommends that real estate agents ask their vendor to obtain an up-to-date account statement from their mortgage lender as soon as the brokerage contract is signed. This statement should contain the detail of all the products covered by the mortgage guarantee.

The real estate agent must explain to the vendor the problems they will face if his mortgage was used to secure several types of credit, and the choice they must make when selling the immovable.

72-hour clause
In the case of a promise to purchase that is conditional to the sale of the buyer’s home and once the 72-hour notice is set in motion, the proof of financing provided by the first buyer will have to include that the mortgage lender will discharge the mortgage and all loans linked to the mortgage guarantee.

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Borrowing Capacity and Preauthorized Mortgages
When you start to look for a property, it is in your best interest to determine your borrowing capacity. That way, you know what type of property to lean towards during your search. One approach is to get a preauthorized mortgage before even finding your property. Thanks to a preauthorized mortgage, you already know how much you can borrow; your interest rate and he amount of each payment. You will be able to find a property that matches our means.

Mortgage Loan Insurance
You dream of buying property but you don’t have enough for a down payment? Not a problem! Mortgage loan insurance can help make your dram a reality. In general today, lenders require you to get mortgage loan insurance when you have put down less then 20% of the property’s sale price. Mortgage loan insurance is applicable to various new or existing properties.

Also bear in mind that having a modest down payment means a higher mortgage payment and in the end, a greater total cost. In Canada, mortgage loan insurance is available through Canada Mortgage and Housing Corporation (CMHC) and Genworth Financial Canada.

The Home Buyers’ Plan
The Home Buyers’ Plan is a government program that allows buyers to withdraw savings from an RRSP to purchase property without having to pay tax on the withdrawal. Funds withdrawn must be paid back into the RRSP within a time limit fixed by the program.

Neither the buyers nor their spouse or common-law partner can have been owner of a property serving as their main residence during the five years preceding he request for withdrawal. In addition, buyers must have finalized a written agreement for the purchase or construction of a property (offer to purchase or preliminary contract) before being entitled to withdraw the funds from the RRSP. For further information about eligibility, contact the Canada Revenue Agency or your financial institution.

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Mortgage amount: $100,000
Term: 3 year — closed
Down payment: 10%

Scenario A:

Scenario B:

*Based on actual April 2005 interest rates posted by a large National Lender using mortgage loan insurance and a smaller Lender who offers mortgage financing without requiring mortgage loan insurance.

Conclusion: After these first three-years:

Under Scenario B, Marc would pay an additional $2,915.46 in interest, as well as the extra $1,000 up front.
Under Scenario A, Paul’s savings from the lower interest rate alone more than offset the cost of the mortgage loan insurance premium.

Disclaimer from CMHC: Despite our best efforts, CMHC cannot guarantee that the information is accurate or complete or that it is up to date at all times.

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-Take your Gross Income and multiply it by .35 ($60,000 x .35 = $21,000)
-Minus the taxes and heating ($21,000 – $3000 – $1200) = Maximum annual payments ($16,800)
-Divide by 12 months ($16,800/12) = Maximum monthly payment ($1400)

With this knowledge, ask your real estate agent what price market you should be looking in for a home.

Whether you’re planning to insulate your basement or attic, replace your heating system or windows, or improve ventilation, a CMHC insured refinance mortgage can help. Contact your local lender for details and conditions.