Lenders will always work to get back the amount that they would have earned on initial loans, analyst says
A Mississauga woman who recently upgraded to a detached home has been slapped with a $22,000 penalty for breaking a five-year mortgage.
Dilini Jayasinghe, who previously lived in a townhouse with her family, said in an interview with CTV News that she chose to get a new, larger home because of the arrival of her baby, despite being only roughly half-way through her previous mortgage.
Jayasinghe said that nothing could have prepared her for the cost when she told the Canadian Bank of Imperial Commerce that she was breaking her five-year mortgage – an initial $15,000 penalty that swelled to $22,000 once the paperwork was processed.
“I had no idea there would be this much of a penalty if I broke the mortgage,” Jayasinghe said.
A CIBC spokesperson said that “in cases where a client wishes to prepay or break their mortgage before their chosen term is up, a cost is incurred by the bank and a prepayment charge can apply.”
However, the bank reached out to Jayasinghe and agreed to work with her for solutions to cut down her penalty, after CTV News reported the issue.
Justin Thouin, CEO at Lowestrates.ca, said that this phenomenon “is common in an environment where rates are going down because banks want to recoup the amount of money that they would have generated on their initial loan… Variable rate mortgages are far more lenient. The most you are going to have to pay for a mortgage penalty is three months interest.”