Selling your home can be difficult at the best of times, but for the most part if you have good information you can make good decisions. More and more we’re encountering situations where people who could sell and make a reasonalble return on their investment are having second thoughts because of the interest rate double edge sword.
We're seeing a lot more buyers coming into the market while the inventory has dimmed from its bright heights of 2007 and 2008. One reason for this is that mortgage rates are the lowest they have ever been.
Along with more buyers, the low interest rates have brought high pay out penalties for home owners with a fixed or closed mortgage. Most closed mortgages have an early payout penalty of the greater of either 3 months interest or the interest differential. For many many years it has almost always equated to 3 months interest. However with interest rates dropping so significantly that has most definitely changed.
For example, in one case the 3 month interest worked out to $4500, while the interest differential worked out to a whopping $24,000. This means if the home owner sold their home, and could not port their mortgage to a new property they would have to pay a penalty of $24,000 to their lender.
In years past there were many work arounds to chisel down the amount owed. However, many lenders like the Royal Bank and others have eradicated many of these programs. Gone are the blend and extend programs that would allow you to at lease blend your interest rate down. Gone seems to be the willingness of lenders to forgive payout penalties if a new mortgage was procured through them within 60 to 90 days.
One thing is for certain. If you are selling its a good idea to know in advance what your penalty will be.
Sheldon,
Very well written. It’s true, unfortunately. The “workarounds” such as “blend and extend” are no longer available. “Blend to maturity” is still an option with some, however, not nearly as attractive.
For many people with an existing mortgage the best option is to either stay put (not that attractive) or, if they want to move, most mortgages are portable. As long as the client is borrowing the same amount or more, they should be able to take their existing mortgage with them to the new property. Any new money would be “blended” but only until the original maturity date. After that they’re at the mercy of the markets…
The nice thing about porting and blending to maturity is that you can generally avoid the penalties. You pay more over time, but no more than you were willing to part with when you first got the mortgage.
Hope this helps!
That may work if you move witin your province but some lenders like atb don’t allow porting outside of Alberta.
One other item I didn’t mention is what effect this might be having on inventory.
Sent from my iPhone
Wow…I called my bank and they said 8000 dollars on a 89000 mortgage…that is 9% value of the mortgage…they sure dont mention this when you get a mortgage with them….when I sell this place can I just keep the money – invest it in a savings account at 3-4% – at least I wont loose all of it?
RBC Bank President Gordon Nixon – Salary $11.73 Million
$100,000 – MISTAKE (FISHERMEN’S LOAN)
I’m a commercial fisherman fighting the Royal Bank of Canada (RBC Bank) over a $100,000 loan mistake. I lost my home, fishing vessel and equipment. Help me fight this corporate bully by closing your RBC Bank account.
There was no monthly interest payment date or amount of interest payable per month on my loan agreement. Date of first installment payment (Principal + interest) is approximately 1 year from the signing of my contract.
Demand loan agreements signed by other fishermen around the same time disclosed monthly interest payment dates and interest amounts payable per month.The lending policy for fishermen did change at RBC from one payment (principal + interest) per year for fishing loans to principal paid yearly with interest paid monthly. This lending practice was in place when I approached RBC.
Only problem is the loans officer was a replacement who wasn’t familiar with these type of loans. She never informed me verbally or in writing about this new criteria.
Phone or e-mail:
RBC President, Gordon Nixon, Toronto (416)974-6415
RBC Vice President, Sales, Anne Lockie, Toronto (416)974-6821
RBC President, Atlantic Provinces, Greg Grice (902)421-8112 mail to:greg.grice@rbc.com
RBC Manager, Cape Breton/Eastern Nova Scotia, Jerry Rankin (902)567-8600
RBC Vice President, Atlantic Provinces, Brian Conway (902)491-4302 mail to:brian.conway@rbc.com
RBC Vice President, Halifax Region, Tammy Holland (902)421-8112 mail to:tammy.holland@rbc.com
RBC Senior Manager, Media & Public Relations, Beja Rodeck (416)974-5506 mail to:beja.rodeck@rbc.com
RBC Ombudsman, Wendy Knight, Toronto, Ontario 1-800-769-2542 mail to:ombudsman@rbc.com
Ombudsman for Banking Services & Investments, JoAnne Olafson, Toronto, 1-888-451-4519 mail to:ombudsman@obsi.ca
http://www.pfraser.blogspot.com
http://www.corporatebully.ca
http://www.youtube.com/CORPORATEBULLY
http://www.p2pnet.net/story/17877
“Fighting the Royal Bank of Canada (RBC Bank) one customer at a time”
Yea the banks love fees and penalties, and they also love pulling up fine print at the last moment to road block you and create a panic, then miraculously find a work around and be the hero. It’s such a pile of …
Honestly I can’t wait for the days I do ALL my banking with a computer. But I am a “self check out” / “internet lifestyle” kind of person anyway.
Maybe it’s me but I find %90 of the people I talk to at a bank couldn’t find an open window on a sunny day.
Wow…I called my bank and they said 8000 dollars on a 89000 mortgage…that is 9% value of the mortgage…they sure dont mention this when you get a mortgage with them…
Uhhhh, yes they do. Read contracts before you sign them . . .
They’re the only ones (ATB) that I’m aware of. That’s because they can’t lend anywhere else by mandate.
The policy of the rest the lending community is that you can port your mortgage, anywhere in Canada, except Quebec or the NWT. Quebec because the laws are different. I assume the same for NWT.
So for 98% of people out there porting is going to be their best bet. As a broker it pains me to say that because the lenders don’t pay me to port mortgages…but it’s probably best for most movers.
Nice to know some bankers actually participate in this blog. Generally, major banks don’t have “fine print” documents and loans now these days are a copy paste type loan agreement so unless this boat loan was done in in times before computers I would guess the terms were written on the docs. That said many have disclosures that indicate changes can be made anytime but the client bust be notified in writting 30 days before hand or something to that effect, at that point if your not satisfied get the loan paid out somewhere else.