This is becoming a hot issue as the penalties for borrowers trying to get out of fixed-rate mortgages just keep going up. I highlighted it here two months ago and have done recent Star articles here and here.
I’m concerned for a few reasons:
— When it comes to calculating an interest rate differential penalty, lenders can do what they like. There is no standard formula, nor is there any federal legislation or oversight. So, how can consumers challenge the bank’s math?
— Going to the bank’s ombudsman isn’t a solution. Most don’t even deal with complaints about rates or fees. Their view seems to be that if you had read your mortgage contract, you would have known a penalty was charged to get out early. You didn’t need to be told of the risks when taking out or renewing the mortgage.
— Using the mortgage prepayment privileges can make the IRD lower. But do banks tell borrowers? Not in every case, that’s for sure. Why isn’t there a law that this option must be made available to clients?
— Selling your house because you can’t afford to stay there is bad enough. It’s worse when a giant fee added at closing can swallow up whatever rewards you expected to make from the sale. Shouldn’t lenders warn financially stretched borrowers that they should plug the numbers into their planning?
After reading the comments below, I hope you agree that something needs to be done to help borrowers. These IRD penalties disappeared for a few years, but now they’re back with a vengeance.