“We need a bigger house now because we have a baby,” Jayasinghe told CTV News Toronto.
But Jayasinghe was only halfway through a five-year fixed rate mortgage. When she called her bank to tell them they were breaking it and that they were planning to go to another lender, she was shocked at the amount of the penalty.
He was told it would cost him $ 15,000 to break his mortgage, and then the penalty rose to $ 22,000 when doing the paperwork.
“I had no idea there would be that much penalty if I broke the mortgage,” Jayasinghe said.
Family banks with CIBC and a spokesperson told CTV News Toronto that “in cases where a customer wishes to pay off or cancel their mortgage before the end of their chosen term, fees are incurred by the bank and charges are incurred. prepayment may apply ”.
The Lowestrates.ca website compares mortgages and its CEO Justin Thouin says banks charge an interest rate differential on fixed rate mortgages and as rates go down, penalties go up.
“It’s common in an environment where rates are dropping because banks want to recoup the amount they would have generated on their original loan,” Thouin said.
Thouin advises that if you think there is a chance that you might have to break your mortgage, you should take out a variable rate mortgage, not a fixed one.
“Variable rate mortgages are much more lenient. The maximum you will have to pay for a mortgage penalty is three months’ interest. ”
After Jayasinghe contacted CTV News Toronto, CIBC agreed to work with her to see if she had any other options to try to reduce her penalty by $ 22,000.
Due to the pandemic, many families have had to postpone their mortgage payments and there are concerns that those facing financial difficulties will have to refinance or sell their homes and may also face huge mortgage penalties. .