– June 1, 2020
Kristina Barybina is a real state agent and, when the pandemic happened, she knew that she had no choice but to sell her home since her income became inexistent. She was also aware that she would have to pay for a fee for ending the mortgage with TD before the 5 years term. But, what she didn’t know is that this fee would be almost $30,000.
Because of the pandemic, many Canadians who have fixe-rates mortgages are being penalized heavily right now, because of how banks calculate their penalties, according to mortgage specialists. They also urge for financial institutions to offer some tolerance during these difficult times for these clients.
According to Rob Mclister, a mortgage planner and founder of a RateSpy.com, says that losing your income from a financial crisis that started because of the pandemic is just heartbreaking. He also added that banks should show some compassion.
Kristina mentioned that she tried to sell her house back in November 2019, before the pandemic, but she had no interested buyer so she gave up on the idea. But, in March of 2020, selling her home was not an option, but a necessity.
Basically overnight, Kristina lost all of her clients, since no one was listing anymore, and also, no one knew when the situation would get resolved and things would go back to normal. To make things even more concerning for Kristina, her two tenants that were renting rooms in her house decided to move out. Kristina is a single mom of a 12-year old and also takes her of her elderly mother. With all of her income basically gone from one day to the other, she saw herself having to take medication for anxiety. She is aware that the mortgage penalty is in the contract, but it is a pandemic situation that could not be predicted. Kristina realized that asking for deferrals on her mortgage would only delay her payments and increase her debt, so she decided that that was not a good idea. Luckily, she sold her house at the beginning of April, just before the housing market started to heavily decrease.
Kristina was only 1.5 years into a 5 years mortgage when it all went down. She had a 3.71% fixed rate, and she still had to pay around $590,000. TD Bank calculated that her penalty should be around $30,000 for ending the mortgage prematurely. Some financial institutions in Canada might use similar ways to calculate penalties for those who decide to end their fixed-rate mortgage early.
According to McLister, mortgage penalties are way higher than the cost to cover bank’s losses. He says that mortgage penalties are way higher than they need to be. TD Bank declined an interview request, but they released a statement saying that they offered Krystina a five-month mortgage deferral and that clients are aware of the penalties when they sign the mortgages. After Kristina filed a complain, the bank didn’t try to negotiate the $30,000 penalty, but TD said that the bank had discussed options that were available to reduce the charge. Kristina said that the bank did not offer her any options to reduce her penalty.
TD Bank also mentioned that it is offering financial advice for the clients who were affected by the pandemic. Hard penalties like the one suffered from Kristina do not happen in the U.S, for example. Kristina argues that she can’t force banks to end mortgage penalties, so that’s why the government must take actions about this matter.
Prime Minister Justin Trudeau released a statement encouraging banks to do more for their clients and help them with during those difficult times, but he was not specific about how financial institutions should handle the situation. Without any further directions, all the options left by the banks are offering differed payments and financial advice.
In conclusion, financial institutions may charge lower interest rates, but they will not clarify the penalties involved if the client decides to terminate their mortgage earlier. We are currently in a pandemic situation, but many unforeseeable circumstances can happen to someone that might force them to give up on their mortgages.
That is why here at Home Mortgage Advice we help our clients to select the best mortgage that reflects their long- and short-term goals, and avoiding them having to pay high penalties, like what happened to Kristina.