Absurdly high mortgage penalties such as those seen in the recent case of an Ontario resident are possible because banks apply the strictest possible sanctions, according to Don Stoddart, principal broker at Key Mortgage Partners.
“When calculating a penalty to break a mortgage you will see the terms, three months interest or interest rate differential to end of term and the greater of the two penalties would apply,” Stoddart said in an interview with The Toronto Sun. “Most major banks’ interest rates are posted well above what we would call market rates.”
The crucial step is to take into account the posted rates, which run from 4.99% to 5.04% for five-year terms, and discounted rates as low as 2.99%. Further drops in interest rates are entirely possible during the ongoing pandemic, and any borrower breaking their contracts will have to bear the brunt of the difference between the discounted and posted rates.
“Which could add up into the thousands and thousands of dollars [in the Ontarian’s case],” Stoddart said.
Ever since the coronavirus outbreak took hold of the Canadian financial system, the Big Six banks have received much flak for their apparent insensitivity to the ordinary consumer’s plight.
Sidra Liaqat, an out-of-work health care aide in Calgary, told CBC her six-month deferral will force her into paying an additional $5,300 in interest to RBC.
“Basically, it’s just the bank profiting off this emergency,” Liaqat said.
“I don’t think it’s fair. It’s not right,” she told CBC.
“The way they are touting the deferrals like [the banks] are our heroes in some way, all the while ‘helping’ us, as a country, into heaps more personal – and fabricated – debt,” said Toronto homeowner Amanda Merle, who will have to pay an additional $7,400 to CIBC for a four-month deferral.