Why Canada Fixed Rate Mortgage Penalties Border on Fraud On May 21, 2014 in Mortgage Players compliments of Calum Ross How many big lender fixed rate mortgage pre-payment (IRD) charges rob consumers

According to Criminal Code of Canada: “380.(1) Every one who, by deceit, falsehood or other fraudulent means, whether or not it is a false pretense within the meaning of this Act, defrauds the public or any person, whether ascertained or not, of any property, money or valuable security or any service,” (a) is guilty of an indictable offence”

Now when I read the above statement and see an everyday client compensating a financial institution that makes over $1 billion dollars a quarter, I have a hard time with my client paying apenalty of over $5,245 for a mortgage of less than $180,000 with less than two years remaining on their current mortgage term (see more below)

Section 380.1 of the Criminal Code then goes oBank Robbing Customern to say:

380.1 (1) Without limiting the generality of section 718.2, where a court imposes a sentence for an offence referred to in section 380, 382, 382.1 or 400, it shall consider the following as aggravating circumstances:

(a) the magnitude, complexity, duration or degree of planning of the fraud committed was significant;

(b) the offence adversely affected, or had the potential to adversely affect, the stability of the Canadian economy or financial system or any financial market in Canada or investor confidence in such a financial market;

(c) the offence involved a large number of victims; (c.1) the offence had a significant impact on the victims given their personal circumstances including their age, health and financial situation;

(d) in committing the offence, the offender took advantage of the high regard in which the offender was held in the community;

(e) the offender did not comply with a licensing requirement, or professional standard, that is normally applicable to the activity or conduct that forms the subject-matter of the offence; and

(f) the offender concealed or destroyed records related to the fraud or to the disbursement of the proceeds of the fraud.

I have to say that reading 380.1 subsections (b), (c) , and (d) make me even more uncomfortable with the concept of abuse of power and bring into question purposeful misrepresentation.

Before you spend too much time agreeing or disagreeing with this quick introduction to the criminal code and what it says about fraud please realize that I hold an MBA in Finance and despite a reasonably impressive LSAT score – I did not got to law school nor can I formally make claim to or support a full legal opinion on this matter or any other legal matter from the criminal code so don’t rely on my above statement as any form of legal opinion…

However, you’d not have to be a trained trial lawyer to look at the above definitions and take a pause to think: “Hmmmmm, that’s what my bank just did to me.” Well if you are one of the hundreds of thousands of Canadians who refinanced a fixed mortgage rate with one of Canada’s big banks you may want to read on, that should be your response. Fixed Rate Mortgage Penalties: How the Big Banks Have You Hook, Line and Sinker

For most homeowners, figuring out your mortgage penalty can be like solving a Rubik’s Cube. Mortgage penalties seem to be written in a language similar to legalese. The sad fact is that you don’t realize how costly it can be to break your mortgage until you have to, are forced to, or if you decide to refinance or sell your property. Life happens, changes occur, but your financial penalty can be quite overwhelming when it does. That is why if you are considering a fixed mortgage with a big bank today, , you had better pay close attention to the posted rate (not the discount rate you are getting) , as it can come back to bite you in the backside if you break your mortgage down the line.

What the Banks Aren’t Telling You About the Posted Rate

They say only a fool pays the posted rate. Accepting a bank’s posted rate is like going into a car dealership and offering to pay the sticker price. You may be wondering why the big banks still keep their inflated posted rates. It can’t be good for business, can it? What if a supermarket sent out a flyer advertising 4-litre bags of milk for $6.99, when you could buy milk down the street for $3.99? We’re willing to bet you’d flock down the street

The reason appears to be because of fixed rate mortgage penalties. Although wholesale lenders (lenders that start by giving you a discounted rate such as ING, First National, Street Capital, and CMLS )do offer better rates than the big banks and come with less costly mortgage penalties, a lot of clients feel more comfortable dealing with their local bank branch (even if it ends up costing them a bundle for this seemingly misplaced trust).

The big banks are “banking” on the relationship and perceived comfort they’ve built up with you over the years. Your bank may be willing to match a lower mortgage rate; you’ll just have to do the legwork. However, it is not only the interest rates you had better be paying attention to. It is also the terms of that mortgage and this is where you can really get caught and in fact agree to paying a hefty mortgage penalty in the future without really knowing it.

Many risk averse homeowners choose fixed mortgages at the big banks over variable without realizing the trap they’ve gotten themselves into. Although you’re protecting yourself from interest rate risk, you’re leaving yourself open to hefty (aka thousands of after tax dollars – hefty) mortgage penalties. Solving the Mysterious Interest Rate Differential IRD Puzzle

For those with a fixed rate mortgage, the IRD – short for interest rate differential – can be like a curse word. Mortgage penalties are pretty straightforward if you have a variable-rate mortgage – expect to pay the equivalent of three months’ interest. With a fixed-rate mortgage it’s a whole new ball game. If you’d like to break the shackles of your fixed-rate mortgage, you’ll pay the greater of three months’ interest or the IRD. I should note that I have two finance degrees and I have personally arranged over $1.7 billion of mortgages and even then these calculations seem complex and inconsistent to me. Beware the IRD

The IRD is how the big banks make out like bandits at your expense. In principle, the IRD is supposed to compensate a lender for the lost interest when you break your mortgage, but in reality the big banks are using it as a massive profit center. In layman’s terms, the IRD is the difference between what the big banks can loan out money today on the streets and what they could have earned had you stayed with them until renewal. While secondary lenders often use their discounted rate as the comparison rate, the big banks use their bloated posted rates, which can result in hefty mortgage penalties.

Besides padding the bottom line of the big banks, they also use these penalties to make it prohibitive to switch lenders. Costly mortgage penalties are like a noose around your neck; due to the prohibitive cost, they may keep you with your lender, even though you’d like to refinance or upsize your home. Although some people hold their nose and pay the costly mortgage penalty, I’m willing to bet you wouldn’t have signed up for a mortgage with the big banks if you knew how costly it would be to break your mortgage. The Mortgage Mismatch

Whether it’s the allure of a lower mortgage rate, to refinance, or buy that McMansion down the street, a lot of homeowners choose to break their mortgage. Most homeowners aren’t thinking about breaking their mortgage when signing on the dotted line, but they should be. There is a mortgage mismatch in the market: 5-year fixed rate mortgages are pushed by the lenders, yet the average first-time homebuyer only remains in their home for between 3 and 4 years on average.

Although an increasing number of homeowners seem to be wising up to the smoke and mirrors of the big banks, there are still thousands of homeowners that find themselves unknowingly at their mercy every year. Unlike credit card issuers who are required to provide a very clear and defined information box when you applying for a credit cards, the bank’s mortgage documents aren’t regulated the same way despite the dollar figures being massively larger. It’s left up to homeowners to read and try to interpret the fine print to find out just how restricted they are and how large their penalty can be. Although all mortgage lenders must provide mortgage prepayment calculators on their website, the penalties can be misleading. You can often find yourself on the hook for thousands more than you anticipated. You Can Win By Choosing Wisely

Mortgage Penalties: The Big Banks vs. Secondary Lenders

To show how costly mortgage penalties can be, let’s run through an example. Let’s say you signed up for a 5-year fixed rate mortgage at 3.49 per cent three years ago (you have two years left). You have an outstanding mortgage balance of $300,000; your monthly mortgage payment is $1,496 and your mortgage is amortized over 25 years. Let’s say the inflated posted rate that was in place when you initially signed up for your mortgage was 5.49 (you received a 2 per cent discount). If we run these mortgage “what-if” scenarios through the mortgage prepayment calculators for one of the big banks, RBC, and a secondary lender, First National, we get two very different results.

While First National comes out with a mortgage penalty of $4,067.81, RBC comes out with a mortgage penalty over triple that amount – to the tune of $14,559.19. This is for the same mortgage amounts.

The math gets even worse when you dig deeper. Here’s the kicker – what the big banks are doing is downright wrong, some have even used the words “bordering on fraud.” . In a recent case of one of my clients we discovered that RBC is using a “comparison rate” that doesn’t actually exist in the market and by doing so demanded that my client pay a penalty of over $5,245 for a mortgage of less than $180,000 with less than two year remaining. The ‘comaprison rate’ they used? 1.39% is what they said they would be able to re-lend the money out at

Well, I have been one of the top mortgage professionals in the country for over ten years and let me make this easy for you… two year money at 1.39% fixed rate does not exist! The rate RBC using is a fictional rate that only exists in their interest rate penalty calculation land. Here is the actual statement: Exhibit A: Sample RBC Mortgage Here’s a closer look at the wording each lender provided on how each lender determines the IRD:

RBC “The interest rate differential is the difference between the interest rate and our posted rate on the prepayment date for a mortgage with a term similar to the time remaining in the term and having the same prepayment options as the mortgage less your rate reduction.” Great verbiage but rate reductions are much higher on longer term mortgages and therefore much less relevant for mortgages of a shorter term. First National

“An Interest Rate Differential (IRD) is the difference between your current mortgage interest rate and the rate we can now receive for a replacement mortgage for the remaining time of the loan. It’s the slight difference in wording to the untrained eye that can triple or quadruple your mortgage penalty. The Final Thoughts – Never Leave Yourself Unprotected

Instead of negotiating a lower monthly fee on your chequing account, you should be asking your lender whether the discounted or posted rate is used when calculating mortgage penalties. If you hear the latter, you should seriously consider running the other way. After all – $5,000 in mortgage penalties pays for an awful lot of banking fees. I have found that, without having the awareness of the larger financial options, consumers will go out of their way to reduce their monthly banking fees, but will spend no time digging deeper into their mortgage terms. A classic case of stepping over dollars to get to dimes.

Unless you’re 100% certain you’re not going to break your mortgage any time soon, and you insist on having a fixed rate mortgage, you should avoid the big banks mortgages like the plague When life happens and you need or want to break your mortgage early, you’ll be at their mercy of fantasy math equations.. Although you may enjoy that free cup of coffee, and the free chequing account, it could end up being the most costly cup of coffee you’ve ever had, if you decide to break your mortgage. Now I can’t say what would happen to my firm if we conducted our business in the underhanded manner that these penalties have been handled – but I have a hard time believing I would have just won the “Canadian Mortgage Broker of the Year award” and quite probably would have zero repeat clients. This type of underhanded math leads to the shut-down, sanctions or tight regualtion on any other consumer service but sadly we don’t see that happening to the big banks..

If you have been a victim to this type of mortgage penalty then please share this article or put your comment below. Forever watching over the well-being of mortgage consumers – your advocate Calum Ross

Of the 10% of Canadians who refinanced their mortgages last year, 62% cited debt consolidation or repayment as the main reason for their refinance. This is because consolidating high interest debt – like credit card balances and auto loans – into a low interest mortgage can save you thousands in interest payments. Mortgage loans come with the lowest interest rates because they are securitized; or in other words, they are backed by an asset – your home. If you were unable to make your mortgage loan payments, the bank has a claim on your house, and this makes your loan less risky.

In order to determine if you can consolidate debt into your mortgage, you start by determining how much available equity you have. In Canada, this is determined by taking 80% of your home’s value and subtracting any existing mortgage balance.

As a refinance for debt consolidation requires you to terminate your existing contract with your lender and enter into a new mortgage, you will have to pay a mortgage break penalty. This is determined through a number of factors including your original mortgage contract date and current mortgage balance and rate.

We will start by showing you how much equity you have available to consolidate your various loans. We will then show you your total interest savings potential from a consolidation and also highlight the cost of refinancing your mortgage.

For the best mortgages in Barrie, Better mortgage service and better mortgage rates in Barrie call us today.

Looking for the Best Mortgage Rate and Term. Look no farther than the 2.49% 3 year fixed rate. Statistics show that most consumers break to refinance or to buy a new home by the third year of their mortgage term costing them thousands in ridiculous and scandalous mortgage penalties. This mortgage is portable and assumable, 20/20 prepayment privileges and the ability to prepay prior to discharge. Not only will you save interest over the 5 year fixed rate over three years but this rate is only marginally higher than a floating variable rate. Barrie Mortgage Broker Darick Battaglia www.darick.ca barries best mortgage rates

A first-time home buyer owes $5,000 to the Canada Revenue Agency after withdrawing her retirement savings for a condo down payment.

Her story provides an example of what not to do when taking advantage of a government-sponsored tax shelter program.

Susan (not her real name) realizes she didn’t take enough precautions when closing a real estate deal under tight deadlines in a hot market.

“I bought a one-bedroom condo in 2011 and cleaned out all my savings to do it, including my RRSPs,” she says.

Since the Toronto condo was close to a subway station, it attracted interest from several buyers. There was a bidding war.

Susan ended up paying $407,000, which was higher than the listing price and more than she had expected to pay. She scrambled to make a 20 per cent down payment to avoid paying a premium for mortgage default insurance.

In the two months before the deal closed, she took out $13,000 from her registered retirement savings plans at two banks.

She didn’t know anything was wrong until she received a $5,000 tax bill a few months ago on the withdrawals.

What happened? She was being penalized for not declaring that she was a first-time home buyer when she took out the money.

?“I stupidly did not tell the banks what the money was for. This meant they weren’t informed to be able to properly designate the RRSP withdrawals,” she says, blaming inexperience for the error.

This was her first mistake. She should have tried calling the Canada Revenue Agency and checking its website – which is easy to navigate – to find out exactly how the Home Buyers’ Plan (HBP) worked.

The HBP allows you to withdraw up to $25,000 from your RRSP in a calendar year to buy a qualifying home.

You must complete form T1036 for each eligible RRSP withdrawal.

After you fill in one area, you give the form to your RRSP issuer to fill in another area.

Your RRSP issuer will send you form T4RSP, showing the amount you withdrew under the HBP in box 27. You have to attach this slip to your income tax return.

Susan made another mistake. She assumed it was easy to fix the paperwork – which hadn’t been done properly – and backdate it more than two years.

“I spoke to two CRA representatives, both of whom confirmed that I could retroactively designate the RRSP withdrawals under the Home Buyers’ Plan. All I would need was for the banks to reissue my T4 slips,” she said.

But when she asked the banks to reissue her T4 slips, one seemed willing. The other said absolutely not.

Banks are allowed to make their own decisions on such matters.

“If the form is not completed as stipulated in advance of the withdrawal, the Minister of National Revenue does not have any legislative authority to retroactively reclassify a withdrawal from an RRSP as a withdrawal under the HBP,” said CRA spokesman Philippe Brideau.

CIBC, the bank that refused her request to reclassify the RRSP withdrawal, did not want to comment about Susan’s case in particular.

“There are forms to fill out,” said CIBC spokesman Kevin Dove. “If you don’t fill them out, you can ask to change something on a backward basis. But it’s more possible to do it when you take the mortgage out with us. Then, we have an audit trail.”

It would be hard to tell the CRA that a customer withdrew RRSP funds for a first home if CIBC had no record that the money was used for that purpose, he explained.

Susan had used a mortgage broker to arrange financing and had borrowed from a smaller financial institution. So, she couldn’t fall back on being a CIBC mortgage customer.

“This is my money,” she said in her email. “Is it fair that the government should be pocketing money that isn’t theirs?”

This was Susan’s third mistake – not realizing the government always has its hands in your RRSP. Since your contributions are deducted from income and not taxed, you will be taxed on withdrawals at a later date.

Free seminar: My financial basics workshop will be held Tuesday, May 13, at Ryerson University’s Chang School, 5.30 to 9.30 p.m., at 297 Victoria St., Toronto. It’s open to everyone who wants to brush up their money management skills.

Ellen Roseman writes about personal finance and consumer issues. You can reach her at eroseman@thestar.ca or www.ellenroseman.com for more information about mortgages in Barrie, Barrie Mortgages, information on the best mortgage rates from a mortgage broker visit www.darick.ca or call Darick Battaglia directly at 705 623 8658

I believe the statements below are true. You are highly advised to consult with a lawyer to either confirm or dispute the statements. This was written to help assist the problem that exists along the shoreline of Tiny Township regarding beach ownership and use and was not meant to create harm to anyone. I would appreciate your feedback or comments if you have anything that could help add to this blog to help clarify the issues.

The ownership trail is not complicated but along the way it has seemed to become misunderstood. The true ownership should be fully understood by realtors, and lawyers representing buyers and sellers so as to not misrepresent public and private shorelines and face potential lawsuits. 

The landscaping characteristics along the shoreline in Tiny Township is a mixture ofsandy beach, rocks, large boulders, and small stones. Georgian Bay is part of Lake Huron and the Great lake system. Tiny Township is bounded by 52 kms of shoreline along Georgian Bay.  It is the “beach” landscaping that has taken on a life of its own worthy of a Hollywood move. Very little attention is given to the rocky shoreline but it does possess the same underlying issues.

In the mid to late 1800s the Federal Government issued Crown patents to the early settlers dividing the Township into large tracts of land that were sold and originally farmed. Some of these parcels of land extended to the water’s edge of Georgian Bay and the rest were inland properties.

The Waters’ edge is an important term here. The patents that were granted were not to the high water mark or to any other description other than to the Water’s edge. This means that as the water levels increase, and most recently decrease significantly, the water’s edge is defined as to where the edge of the water is. In other words; the property lines is dynamic moving with the water levels.

By the early 1900s the settlers who purchased their crown patents of land, or those they may have sold or become business partners with, began to develop plans of subdivision by dividing up their property into smaller single family building lots for sale to those that wished to build new cottages.

Most of these original new plans of subdivision occurred along the shoreline creating waterfront properties and back lots along a main road that we have come to know as Tiny Beaches Road South and North.

For the most parts these lots were 50 to 100 ft wide.  The developers of these new subdivision were required to follow Township by-laws, Federal and Provincial  Ministry requirements.

There was confusion by Government Ministries at this time that has trickled down to present day and has found its way to the courtrooms in Ontario.  This confusion involved  an incorrect assumption by the Ministry of Forestry and Lands that the Great Lakes were on a Tidal system and as such prevented developers to create property lines beyond the “high water mark” , a term that applied to Bodies of water with Tides.

The Great Lakes do not have Tides.

The property developers disputed this claim but nonetheless they were told that if they wanted to create their subdivisions they had to adapt to this new interpretation of the definition of their property line.  They were not permitted to create a property boundary line beyond the high water mark.   As a result of this mistake, the lands between the surveyed mark of either a specific defined measurement or the  high water mark and the waters edge reverted back to the Crown again. Interesting note here: The Crown..not the Township. If the Township wanted to use the lands they were required to lease it back from the Crown.

A short time later this mistake was realized by all government authorities and the lands reverted back to the developers. 

Some of these developers , or the heirs over time,  kept the beach in front of their newly created boundaries for themselves, some donated them back to the Township creating public beaches, some of the developers created community beaches whereby only those in their plan of subdivisions could use the beach.  This is how it is. The waterfront ownership in Tiny has many different descriptions