Another recent news article on outrageous payout penalty: http://www.cbc.ca/news/canada/edmonton/td-bank-client-devastated-by-17-000-mortgage-penalty-1.2790108?
The subjects in the article went to CBC Go Public to get their payout penalty lowered at TD after their efforts were fruitless. The public pressure got them an undisclosed offer, which they accepted. Not all borrowers will be this lucky. Some readers commented that they should have read the contract and some said they signed for a 5 year fixed for a lower rate and should be held responsible. I think it comes down to whether the contract was explained to him. Whether you go to the bank or a broker, these key points of a mortgage should be explained to the borrower. If not, I think they have a legitimate complaint.
Well, if they went to a good broker, they would probably not end up at the bank at all. In theory, the penalty is to protect the bank from the losses they would incur if they lend the money out at the current lower rates, but often in practice they are coming out ahead. It is in their financial interest for the borrower to pay out early. Non-bank lenders do not hide behind posted rates and have a simpler and thus less onerous payout penalty. I am sure they are not loosing money, so the banks can definitely survive on a more reasonable payout penalty. But then again, why should they? People continue to pile into their branches for mortgages and the bank CEOs are still a servant to the shareholders.
Unless you are a shareholder of the bank, you should look into a non-bank mortgage.
Related posts:
Outrageous Payout Penalties at the Banks – Avoid Them!
