The Canadian Banking Industry changed somewhere along the last few years, quietly, and in the case of our sellers deals, Deadly!
In the past year I have personally been involved in four sales that had existing first mortgages with one of the five Canadian Banks:TD Canada Trust, Scotiabank, CIBC, Bank of Montreal and Royal Bank where the penalties have been totally out of line with what the sellers expected.
The first was where a client was selling and buying so they thought they would just "port" their "portable mortgage" but as there had been a cashback, the penalty was $27,000. The second sellers were getting separated. Both were going to buy again but when they found that it was going to cost $25,000. to get rid of their remaining mortgage that thought went out the window and one had to go and rent. The third was a landlord who after having had it with the renters in the market sold there investment property only to have the bills, including the penalty so much they had to go to take out a loan to pay the real estate fees. And the most recent was a house that the client had had for over three years which was the old policy and assumed nothing was changed but the $6000. budget was totally blown when the closing costs showed a $15,700 penalty.
We found a couple of tips to try to minimize these costs. The First, was to scrape together the maximum allotted in prepayment to reduce the amount of the mortgage and therefore reduce the penalty before closing (even if you use your line of credit or savings). The Second, If you think moving is in your future consider a shorter or open term when your mortgage comes up for renewal and The Third, whenever possible stay with the existing company as they will negotiate to keep the business so visit your bank BEFORE you are considering listing your home. There is also a way if you have a gap between the sale closing date and purchase closing of less than 120 days most will reduce or eliminate the penalty.
Warning GET THE PAYOUT BEFORE YOU LIST as the math can get you. If there is little or no equity in the house that is being sold. It can effect the sellers ability to qualify for the next mortgage and whether they will be high ratio or conventional with the subsequent CMHC fees. Portable does not mean portable unless there is no changes and they will still check to see if you qualify! The worst is to be seen as the Realtor that didn't check this out beforehand and now you have an unhappy client.
If the banks wanted to endear themselves to their clients they should BOLD THESE COSTS upfront and consider the prepayment amount reduced as a courtesy on the closing date.