The broker's succinct guide to mortgage penalties

The broker's succinct guide to mortgage penalties

The broker In an environment of ever-rising prices and interest rates, it may come as a comfort to Canadians that they are not destined to fall into the trap of enormous penalties just to break their mortgages early, according to DLC Mortgage Experts broker Dustan Woodhouse.

While breaking a fixed mortgage involves a hefty penalty – usually the greater of three-months’ interest or the interest rate differential (IRD) – Woodhouse noted that access to information will greatly help in avoiding punishing penalties down the road.

“We see absolute devastation when it is 5%-down buyers in a flat or declining market that also paid a 4.15% CMHC premium, and are paying Realtor fees to sell,” Woodhouse stated, as quoted by CMT. “It is costing some of those people tens of thousands to get out of their property. And it could have been avoided.”

This is the aspect where brokers are uniquely equipped to help clients, especially unexperienced buyers. This is because they have access to a wide range of mortgage products that can suite the particular needs of each situation.

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In addition, Woodhouse emphasized the need for brokers to inform borrowers that they might have to move or refinance sooner than predicted.

“The conversation around how pre-payment penalties are calculated are of just about the highest importance when it comes to how I work with my own clients,” the industry veteran said. “I lead with the topic of prepayment penalties on every client inquiry, within the first 15 minutes or less.”

One avenue that brokers might consider sharing with clients is ignoring fixed-rate products altogether, Woodhouse suggested. This is because a significant number of variable products involve just a 0.50% balance penalty, approximately 9 times lower than the going fixed-rate penalty.

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