Broker clarifies cancellation fee controversy

by |
The broker featured in a Toronto Star article for levying a hefty cancellation fee is alleging inaccuracies in that report.

The article, published last week, claims a Toronto couple was charged a $10,000 fee for choosing to stay with their existing lender once they learned they would be hit with an even more sizable prepayment penalty of $43,000 from their existing lender.

The brokerage, Monster Mortgage, tried defending itself in the original Toronto Star article.
“We’ve been doing it for at least 15 to 20 years. It’s always been our practice,” Vince Gaetano, president of Monster Mortgage, told the Star. “Our clients are fully explained, what their obligation is. If you’re not happy with the service, don’t sign anything.”

However, Gaetano told that the article contained incorrect information and that the writer showed little interest in accuracy.

“It’s not a $10,000 penalty, that’s not accurate,” Gaetano said. “It’s 1% of the mortgage amount … I really don’t want to get into the particulars because it’s before the courts.”

Gaetano also said it was a mortgage for a single client and not a couple.

The client signed a contract that stipulated the fee would be charged in the event the mortgage process was cancelled after the client had signed off on a commitment, according to Gaetano. He said the penalty is aimed at helping the brokerage recoup lost commission on the cancelled deal.

Many brokers argue cancellation fees are necessary in today’s mortgage market where rate shopping is the norm.

In a poll hosted by last year, 68% of industry players said they would consider implementing cancellation fees of some sort in a bid to deter flighty rate shoppers.

“I use cancellation fees, of course; I put them in the contract,” Walid Hammami, a broker with Dominion Lending Centres in Montreal, told “If I feel like I’m dealing with a rate shopper, I make sure to put it in; I call it the ‘keep you honest’ clause.”

However, while many are supportive of the practice, some argue the penalty should be a token cost that doesn’t charge the entire potential commission amount.

Still, these penalties may become even more prevalent with brokers doing whatever they can to protect the ever-important efficiency ratios.

After all, as Dan Eisner of True North Mortgage pointed out in the original Star article, lenders sometimes punish brokers whose deals fall apart.

“When we submit a deal, there’s a cost to the lender to underwrite it and they hold it against us if the deal doesn’t close,” he said. “They pay us less (and) give us worse rates going forward.”

Still, industry players point to the importance of properly explaining cancellation fees and prepayment penalties.

“Clients don’t always understand what they are signing,” Mike Maguire, a broker with Mortgage Wise Financial, told

Gaetano told he assumes the agent responsible for the file explained the penalty ramifications to the client.
  • Jim T, Advent Mortgage on 2015-09-24 9:49:18 AM

    The problem here is that often times agents do not fully explain the ramifications of these cancellation clauses to the client and they don’t because it is not in the mortgage agents interest to do so. It is the agents goal to get the signature on this clause asap and trap the client, the goal to prevent the client from going elsewhere. I suspect that if the client was fully informed of the ramification of these clauses, 9 out of 10 clients would run for the door (as they should)!

    I understand that the business has changed dramatically and rate shoppers will waste your time. However, these cancellation clauses are not right. You cannot force someone to deal with you. If someone wants to go elsewhere, then tough luck to you mortgage agent. This is now the nature of the business and you better adjust your business process to take this into account. We have adjusted our business for this and I can say that of the 900 or so deals I will fund this year, my funding ratios are over 90%. It can be done.

  • Mortgage Delivery Guy on 2015-09-24 9:51:49 AM

    I like the idea of commitment cancellation fees. It happens frequently in today's market.
    In my practice I notice when clients are informed about the difference in rate & real impact on their mortgage payments, they stop rate shopping.

    Despite of explaining there will be some who will abandon your commitment & for them should be commitment penalty fee.
    Didn't you work for that commitment?
    Why wouldn't you not get paid for your time?

  • Dave on 2015-09-24 9:55:48 AM

    This is nothing compared to the IRD penalties banks have slapped on clients for years. Or the collateral charge mortgages they never explained at the branch.

  • warren ross on 2015-09-24 9:56:55 AM

    I'm all for cancellation fees if the client acts in bad faith. In this case the broker should have been aware of the penalty the client was facing as he had to have viewed the clients current mortgage statement (fixed mortgage + big bank = big penalty). For the broker to put the responsibility on the client in this case seems unethical as he seems to have simply baited the client into entering a bad deal with his consent form. Verdict for the client.

  • Mike on 2015-09-24 10:03:22 AM

    Seems to me the the brokerage was incompetent. The first thing they should have been doing is have the client check the penalty at the existing institution. We all know they can be very large at times and should never be guessed at. Plus Monster Mortgage has this on the front page of their web site: Our Services Are Free

    Our expertise and advice is all yours for free. We’ll handle everything so you can have time for the things you want to do.

    I don't think $10,000 is free!!

  • John on 2015-09-24 10:05:30 AM

    I knew there were brokers out there charging cancellation fees but charging the full 1% commission will give brokers a bad name. We have spent many years gaining visibility in the marketplace and this could set us back quite a ways. I was under the impression brokers were charging a $1000 fee in these cases. In this particular case it was the penalty that caused them to cancel the deal, not shopping around. I myself don't believe in charging cancellation fees but not opposed to a nominal fee. The full 1% commission is a little too aggressive in my opinion.

  • Steph on 2015-09-24 10:18:38 AM

    Seems to me that if you put the client first, build a relationship and two way trust, you shouldn't have to worry so much about the client going elsewhere. You are not going to be able to help every client, that's called sales. But if you explain everything upfront, show and ACT like you genuinely care and do the right job for the client, then perhaps your reputation, not rates, will earn you more business.

  • nick on 2015-09-24 10:38:48 AM

    so this is what the business has become. In 25 years of business i have never had a client sign a contract whatsoever. Clients count on the broker for their expertise. Did the broker not know that there would be a penalty that would negate any savings or should that have not been discussed before the client entered into any agreement.. I feel ethically and perhaps legally the brokerage is not doing their job, in my opinion of course. This has no place in our business and i can also tell you that my cancellation ratio is under 5%. i rely on the relationship i build with every client and this replaces any mortgage contract. To each their own , but definitely not for me.

  • Kris G on 2015-09-24 10:51:23 AM

    That is ridiculous and not surprisingly before the courts.

    Does the bank charge a fee to start or a cancellation fee? NO.

    We win some and loose some. The great files make up for the lesser great ones. It is called contingency. Waste less time on rate shoppers and spend it with those that value your advice...
    I don't want to see a Penguin commercial about how brokers charge cancellation fees!

  • Ryan Kirwan, HQ Mortgages Inc. on 2015-09-24 12:04:31 PM

    Jim T from Advent Mortgage is correct. While our brokerage will fall a "little short" of the 900 deals Jim funds, I have to agree with him.

    You as the mortgage agent/broker have to give the client a reason to stick with you.

    In a market where mortgages seem to be a commodity, there are still other ways to retain these rate shoppers without putting a cancellation policy in place. Those with the secret sauce will still be around 10, 20, 30 years from now.

  • Dan Eisner on 2015-09-24 12:44:00 PM

    We believe that every brokerage should have the right to have whatever cancellation policy they think is best for their clients, shareholders, employees and the industry. As presented, in this situation we would have waived the cancellation fee as we feel it would have been our fault for not confirming the penalty. We never want to put anyone into a worse financial position. Far less than 0.5% of our clients are actually charged a cancellation fee.

  • Ron Butler on 2015-09-24 12:48:56 PM

    Jim T. is wrong, picture this: a free transfer / switch, you have a much better rate offer than the incumbent bank, you tell the client to go back to his bank and REVIEW OUR OFFER WITH HIS BANK. The client does so and the bank still is not even close to our rate.

    The client signs with our new lender, provides every condition settlement document and the lender pays for an appraisal, we reach the point the file is complete. FCT orders the discharge from the incumbent bank.

    Suddenly the retention team at the incumbent bank comes to life, they phone the client and although they do not match our offer they are very close and then they throw in free checking on his two accounts for a year: bingo the client cancels with us.

    That is the simple reason you do need a service agreement and please don't start with the "online lenders don't have enough relationship with the client" or "if you were a better salesperson you could have talked them into staying" honestly, don't start that silliness.

    Therefore Jim T. is wrong you DO need some kind of Service Agreement. Should it be 1.00% of the mortgage amount? In my opinion: no, definitely not, a token amount like $300.00 to $500.00 is fair depending on the region.

    We are funding 2860 mortgages a year and we have no where near a 90% funding ratio but we do know we need a rational Service Agreement to let the client know that we value our own time and efforts and we are not simply a mechanism to keep his own bank competitive. The Agreement needs to be fair (a $43K penalty means you don't have to pay me $10K or even $300.00) and the amount needs to be nominal but any fair minded consumer would agree that we should not do work to the point the file is finished for zero return.

  • Jim B, DLCME on 2015-09-24 1:00:26 PM

    For those arguing against cancellation fees, how do you explain lender payout penalties? What if your cell phone provider is Bell and you decide to cancel? how about Natural Gas provider? What if a client backs out of a real estate transaction at the last minute? Many businesses implement penalties for customers who sign letters of intent or contracts and the do NOT honor them.

  • bruce davison on 2015-09-24 1:08:36 PM

    Ignoring the penalty issue, the commitment issue can be supported pro and con. If we are suggesting using with every client, my response is how big is the problem and how big therefore is the hammer. I hate offending the 95% good guys because a few bad apples mess up my system. How many who didnt sign could have been great clients. I personally do not like signing something (or even putting down deposits) for uncertain circumstances to follow. I have in 40 years used a form with 4 clients; the purpose was to have them NOT choose me as their agent. One did not go ahead, but “unfortunately” 3 signed on - one actually closed with me surprisingly, two others cancelled my deals later and went elsewhere. I didn’t chase my token $500 commitment fee, but did send a congrats / feel quilty letter that resulted in one referral. Later I decided to simply say NO a little more aggressively. But yes, we have had increases in cancellations, and if my volumes are small and falling, that is an issue, but is that the correct solution? If my volumes are ever expanding, I need to be careful with the size of the hammer chosen for the tiny nail or the damages will be mostly on my fingers.

  • Bob on 2015-09-24 1:12:12 PM

    Cancellation fees are an absolute disgrace, if bank mortgage specialists charged a cancellation fee EVERY broker would be up in arms, calling it punitive and a way to trap customers. In a free market a consumer needs the right to walk away & shouldnt be fined for doing so. If you cant keep your customer based on rates or service, then choose another career. Plus if you are charging a cancellation fee, stop saying you work for free as its blatant false advertizing & probably illegal and should be fully disclosed on websites and all communications. If this practice becomes widespread it can only have a detrimental effect on Broker market share, as banks have deep pockets when it comes to advertizing the benefits of using them for finaicing over competitors.

  • James on 2015-09-24 2:01:28 PM

    I have to admit that it can be frustrating to lose a deal to either bank competition or other reasonable sensible cause such as IRD or conventional penalty, however a 1 % fee is ridiculous. I am in my 16th year in this industry and work to provide expertise, advice and build relationships to obtain and maintain that business / client. I have never charged nor obligated a buyer / borrower with any kind of fee due to cancellation.

    Seems to me as pointed out in prior comments that should the simple due diligence of addressing the actual cost of pre-payment calculation been met, this would have managed all parties expectations.

    In my opinion, these cancellation fees are worse for business than competition from Banks.

  • Chris on 2015-09-24 2:54:23 PM

    We stress that as a mortgage brokers,we work for you, not the banks. I often discuss with my clients how the 'big banks' are getting away with charging outrageous IRD penalties and clearly not looking out for their clients interests when charging them these penalties. How on earth can a broker turnaround and charge a client a large 'penalty'?? I would also add, that you should've known to expect a large penalty from the clients existing bank, all this would have been avoided..

  • Walid Hammami on 2015-09-24 3:01:45 PM

    My penalty fee is 1%. But before I put it in the contract, I make sure all things are covered and one important thing is the lender's penalty. That penalty clause saves me a lot of time, I use it to filter out clients.

    If an unforeseen event happens like a bad evaluation or accident then I will not ask for it. My objective was not to hurt the client, just to ensure fair business proceedings.

    There is nothing wrong with it. If presented correctly, the client will not mind.

    I sometimes encourage them not to leave and wait until the maturity date (unless there is no other choice). We always have to act in the client's best interest.

    Believe me, they will appreciate it and will reward you accordingly. Just be patient and don't be money hungry.

  • bruce davison on 2015-09-24 3:46:27 PM

    To Butler
    I think the nominal fee,as you mentioned, if the form is being used for all clients is good in that it doesnt ( if it is nominal) offend the 95% good,just to attack the less generous. Not excited about brokers trying to get paid full comm on a deal not completed or a form that threatens that type of response

  • Jim T, Advent mortgage on 2015-09-24 6:29:28 PM

    Ron, I am not wrong. Not at all. As stated by Eisner, every business has the right to run their shop as they see fit. My business does not need to 'trap' clients as I have built a process that ensures almost all deals close and I waste little time on clients who jump ship. If you feel you need this, that is your choice. As an aside, I have seen these contracts from many brokerages (clients have shown me what they signed) and in most cases they are not that clear. What a surprise!!!! So, the question is this: would you sign such a contract, a contact that forces you to do something against your will? Hardly. Can't wait to see the fallout once the media fully picks up on this.

  • L McVeigh on 2015-09-25 10:33:53 AM

    It's funny how some brokers on this message board are hung up on losing their commissions, by the most part, from a few clients who do not close their mortgage. In my opinion, we MUST look at the bigger picture and (as Jim T said) look at the fallout from the big banks using instances of clients being charged a large fee for cancelling proceeding with their mortgage. The point is not weather it is fair, but look at the ramifications of this bad publicity and think of how that could impact your business. Sure it's frustrating to have that client walk in the 11th hour, but you have to take the bad with the good...big picture people, not fair, agreed, but sometimes life just isn't fair is it so deal with it

  • broker on 2015-09-25 10:46:36 AM

    When lenders stop linking compensation and rates to efficiency, we'll stop charging a cancellation fee. Until then, we have to protect efficiencies at all costs. These fees don't give brokers the right to take shortcuts on disclosure or skimp on advice. They are there only to make clients think hard before they ask multiple parties to expend significant efforts on their behalf.

  • Debbie on 2015-09-25 11:26:09 AM

    To Butler's comment. I agree with you on the switch situation. The client has had every opportunity to stay with their lender. But once a client has met all conditions FCT has ordered the payout and the client gets a call where the bank now wants to match the rate. When a deal is completed I don't see why there would be an issue charging a nominal cancellation fee. I have though of this as well. It's very frustrating to have a complete transfer deal lost at the 12th hour and the only issue I have is on switches. I rarely loose a client on a purchase.
    But how do you enforce a client to actually pay in cancellation fee the end?

  • Ron Butler on 2015-09-25 11:59:11 AM

    Jim, you initial post on this article read "these cancelation clauses are not right" now you say "every business has the right to run their shop as they see fit"

    In your initial comments you did not say it was my choice you said cancelation clauses were not right. I explained you were wrong based on that emphatic statement.

    I responded to the first statement but now you have morphed your story to something new.

    I know you run a very successful shop that is extremely efficient, has low labor costs, has above average funding ratios and is marvellously profitable but if you are going to comment on these boards you must read your opening comments before you rearrange your later comments.

    2860 clients have signed our service agreement in the last 12 months, we had 11 cases we asked for the client for the payment, 8 of them immediately agreed they owed it, they respected the time and work we invested and they admitted we had the better deal and that they were just staying with their bank for convenience sake, they paid instantly. 4 clients needed a little time to be convinced but all clients that we asked to pay did pay. No one paid more than $500.00

    Clearly you would not have signed the service agreement but I guess a few people do see the fairness of it.

  • Mike on 2015-09-25 12:21:42 PM

    Debbie-- I have never lost a deal in the 12th hour unless it was title issues or something like that. Seems like all you do is focus on rate. Clients who shop their mortgage at renewal usually have other concerns. It always amazes me the number of clients I get that did their mortgage five years ago with a broker. Most can't even tell me the name of the broker. Why not sell them on the service you can provide? Especially at renewal. Alot want advice, ways to pay down faster, budgeting, how to upgrade in the near future. Be competitive, yes, but there is alot more to it. Everyone has a rate and you can always be beat but you won't be beat if they value your service. On the flip side if you don't want to do that just stick them with a cancellation clause and take them to court. Bet you won't get a referral form them or ever see them again.

  • Jim T, Advent Mortgage on 2015-09-25 2:05:55 PM

    Interesting that most of those who use these cancellation clauses do not publicize them on their websites. I ask again – would you sign such a document that ties you down? I think not. Instead, the users of these clauses prey on those who do not really understand what it is that they are signing. As I mentioned earlier, I have seen the clauses from the many that use them and in many cases you need a lawyer to help understand them.
    I just had a great marketing thought – those of us who do not use these clauses can actually market this fact and warn the consumer to steer clear of those brokers who do us them. Hmmm…….

  • abby on 2015-09-25 2:14:59 PM

    So why not charge an application fee like car salesmen, and stop calling this a free service to the client

  • Scott N on 2015-09-25 8:08:41 PM

    As a new mortgage agent in the industry I can understand the need - as a business - to mitigate the risk of deals falling apart in the 12th hour. When you are dealing with new clients on a regular basis, in high volume, you run the risk, especially with rateshoppers of cancelled deals. Sometimes people simply leverage a commitment from a monoline lender with their existing bank - and waste everyone's time, and resources.

    However, if as an industry, we were to normalize a cancellation policy for clients - or receive press attention regarding this, it would fuel bad sentiments regarding mortgage brokers. Even if proper disclosure is provided to a client, if, as the article above has suggested a broker chooses to charge 1% - some well informed clients will still play the victim and categorize brokers who are charging moderate fees as crooked sales people.

    It is a delicate balance, and there is no right or wrong practice to follow. Losing clients at the 12th hour is part of the cost of doing business - in my young, humble, and less experienced opinion.

  • John Bargis on 2015-09-27 9:54:36 PM

    I can't believe there are actually brokers out there that are so narrow minded when it comes to this topic, that they can't see the forest through trees.

    Exclusivity and cancellation agreements were created for very good reason, and it's simply a smart business practice. These type of agreements were introduced in the real estate industry when consumers, who are by no means lily white in any business environment, were using and abusing realtors who trying to make an honest living, by spending valuable time with clients who disrespected the time they could have spent with their families on weeknights and weekends. Mortgage Brokers are no different.

    Anyone who's delusional about the fact that there are clients who wouldn't think twice about taking a broker's commitment, and playing everyone against one another is either out of touch, or is hell bent on winning the race to the bottom. I call it poor judgement, and lack of sound business foresight.

    Whether a firm chooses to use exclusivity/ cancellation agreements selectively, or as a general business practice is their choice. But the loose and unintelligent commentary on very serious topics such as this, show how disconnected some brokers are from understanding the importance of all the moving parts involved in the process of a mortgage transaction, (efficiencies only being one), that actually negatively impact the consumer and our industry alike in the long run.

    Although none of us are in a position to comment on what actually transpired in this case, I don't believe Monster Mortgage didn't thoroughly explain their process and expectations to the client with their level of experience....But that's for the courts to determine and not for public opinion to decide.

  • Lorne Rackel on 2015-09-29 10:16:53 AM

    We are considering a cancellation fee. Yesterday we had a customer cancel and go to their bank. Their bank originally declined them. Our rate is less, our insurer fee is less as approved in May but their bank approved them after they saw our commitment. We know learn that their bank has offered other FREE services and a reduced loan rate. Surely we deserved something for opening the door that was once closed by their bank.

  • Vince Gaetano on 2015-09-29 4:39:54 PM

    I appreciate the interest from Jim T, Ron B, John B and all others on their interest in an inaccurate Toronto Star article.

    The fact of the matter is The Star article has a number of inaccuracies and the matter will be settled before the courts in due course. has been advocating the use of local mortgage brokers on television for the past 14 years and will continue to do so to showcase the value our industry provides Canadian homeowners. Over the years, a large number of mortgage brokers have appreciated our work advocating for the industry. Taking aim at our firm's business practice without full knowledge of the facts of how we conduct ourselves is presumptuous.

    For those mortgage professionals that have no need for cancellation contracts, I applaud you.
    If you feel you have a competitive advantage not having to use a cancellation fee, that's a feather in your cap.

    We are of the opinion that our time and effort past the point of a free quote, is valuable and comes at a price which is fully disclosed to every borrower we deal with.

    There are many different personal opinions so let's agree to disagree on this issue and we can all get back to servicing clients to the best of our abilities.

    Happy brokering.

Broker news forum is the place for positive industry interaction and welcomes your professional and informed opinion.

Name (required)
Comment (required)
By submitting, I agree to the Terms & Conditions