July 10 2010 by Ellen Roseman
In its last budget, the federal government promised to standardize the calculation and disclosure of mortgage prepayment penalties. Ursula Menke, head of the Financial Consumer Agency of Canada, says she expects something this fall.
If you want to know why greater clarity is needed, check out Nadeen’s story below. She’s being charged over $30,000 to break a $360,000 mortgage at BMO, when the penalty should be $8,000 under the interest rate differential formula.
The key issue: Even though her actual mortgage rate is 5.05 per cent, BMO is using the posted rate in effect when she took out the mortgage — about 6.45 per cent.
This posted rate, and the process for determining her penalty, was not disclosed in her mortgage contract. Her financial adviser, Ted Rechtshaffen, says it’s not right.
I am appalled that a major Canadian bank can charge this fee â€“ essentially by making up the process along the way to suit their interests.
How many Canadians simply accept the fee and pay the bank an astronomical amount, or decide to keep their business at the bank because the fee is too high?
Mortgage rates are moving up. Economists speculated yesterday, after a healthy jobs report, that the central bank plans another quarter-point rate increase.
Still, the gaps between older and newer mortgage rates will continue, especially when banks insist on using fictitious posted rates that almost no one ever pays.
Let’s make sure Ottawa brings in tough new rules soon. Banks shouldn’t be allowed to play these games any longer.