Recently, I had a client call me in near tears. Her current mortgage payout penalty was just over $16,000. Could I help her?
Four and a half years ago, she had agreed to a 10 year term with one of the “Big 5” banks. Her current interest rate was a whopping 5.45%, and her payment was about $1500/mth. Could I help her, or was she doomed to mortgage prison, with no key in sight to get her out?
I did some research, and found the following information under the Federal Interest Act of Canada:
- 10. (1) Whenever any principal money or interest secured by mortgage on real property or hypothec on immovables is not, under the terms of the mortgage or hypothec, payable until a time more than five years after the date of the mortgage or hypothec, then, if at any time after the expiration of the five years, any person liable to pay, or entitled to pay in order to redeem the mortgage, or to extinguish the hypothec, tenders or pays, to the person entitled to receive the money, the amount due for principal money and interest to the time of payment, as calculated under sections 6 to 9, together with three months further interest in lieu of notice, no further interest shall be chargeable, payable or recoverable at any time after the payment on the principal money or interest due under the mortgage or hypothec.
In common terms, the Federal Interest Act states, that once 60 months of your agreement have been met, the lender can only charge 3 months interest on the outstanding mortgage balance. This Act protects all Canadians, even if they have agreed to mortgage terms for more then 5 years.
The key to unlock my client’s uncomfortable mortgage, is to stick with it a few more months, until the 60 months have come and gone. At that point, she is free to look at some real options, that will save interest, and put her on a path to becoming mortgage free much sooner then her current situation! By being patient, until the 60th month is up, she will only have a penalty of approximately $2900, instead of the staggering figure of $16,000!
Keep this in mind, when you consider all the options for your mortgage. No mortgage can go ahead without your agreement to it. Know what you’re signing for, and protect yourself from mortgage prison, with no ‘key’ out! I’d be happy to share what is possible to give you mortgage freedom, instead of ‘locked up’ mortgage bondage.
Questions about your mortgage options? Give me a call!
Blogged by Elise Hildebrandt, AMP Mortgage Associate Broker Lic #316103 at The Mortgage Centre Brokerage Lic #31547, Saskatoon Elise has been in the financial industry for 16 years.