Finally somebody is so upset at the bank’s payout penalty that she has started a class action lawsuit. In fact, this was started 2011, but recently the judge has decided that this case can be “certified”, meaning it can go forward.
Erin Sherry was hit with a $47,868.91 prepayment penalty 3 years into a 10 year fixed term from CIBC. This case will affect all mortgage payout penalties collected since 2005 by CIBC.
The original judgement is here but basically the plaintiff contends that
1) The language in the contract around penalty calculations are so value it cannot be enforced.
2) If it was enforceable, then it should be 3 months interest rather than IRD
3) And if it was enforceable as IRD, it was calculated incorrectly.
There is not a lot of coverage of this anywhere. Of course, you don’t expect the banks to put up a flyer next to the tellers, but I am surprised I don’t see more brokers talking about this. In fact, it is a disservice to the clients that this is not mentioned.
Here are a few recent articles on the topic of the banks payout penalties. Sit down and turn on some lights before you read it, because it is scarier than Stephen King.
http://clubmom.ca/mortgage-payout-penalties/
In one example a $500,000 mortgage with a 5 year fixed rate of 3.59% is paid out after three years. BMO and First National, Canada’s largest non-bank lender are compared. With First National the payout penalty is $8142.84. With BMO it is $22,171.86!!!!
Less dramatic was the ING and Scotia comparison. Once again it was a 5 year term with 2 years left. The mortgage was $250,000. For ING the payout penalty is $1800 and for Scotia it is $5000.
You may say I am sure I will stay the full 5 years, and you may be right but statistically the majority of the 5 year terms are broken before they mature. So is there a reason why you want a mortgage from a bank?
Alternative lending.ca help people with difficult situations get financing and people in good financial situations get better financing through non-bank lenders. We operate out of Vancouver, BC, but can assist people in all of BC and selected locations in Alberta, Manitoba and Saskatchewan.
