Ellen Roseman helped an ING customer get a $7,300 refund.
Grace Modesto had a bad experience with ING Direct when separating from her husband and selling the family home. Luckily, the bank listened and reversed its decision.
She was told she could take out another mortgage within 120 days and not have to pay a penalty. So, after buying a condominium with her mother, she took out a new mortgage with ING.
The $7,300 penalty she had paid was supposed to be reimbursed when the deal was done. But later, she learned she wouldn’t get a refund after all.
“I now have a variable rate mortgage at 2.25 per cent,” she said. “To get reimbursed, I’d have to get a fixed rate mortgage as I had before, whose rate is now at 4.5 per cent.”
“I was misled. I wasn’t properly informed. Had I known, I would have accepted offers I had from other financial institutions.”
I sent her email to ING’s chief executive, Peter Aceto, at 7.30 p.m. one weeknight. He got back to me by 9 p.m., saying he was on the case.
Two days later, Modesto was told she’d get back her $7,300 penalty payment. ING had listened to the phone calls and realized it had made mistakes in communicating with her.
In particular, the key message about sticking with a fixed rate mortgage wasn’t made clear to either Modesto or her mortgage broker.
I like the bank’s decision to rely on both written and verbal disclosure. Many people don't read the mortgage contract. And even if they do, they may find the terms unclear and hard to understand.
Complaints about mortgage penalties are less frequent than they were a few years ago when interest rates plunged. I’m still waiting for Finance Minister Jim Flaherty to make lenders standardize their calculations.
You can find mortgage penalty calculators online, such as this one at Rate Supermarket and this one at Canadian Mortgage Trends. But they’re only a rough guide.
If you're breaking a closed mortgage befoie maturity, it’s important to ask your lender to include your mortgage prepayment privileges in the payout amount.
“Some lenders use the prepayment privileges in the calculations when fully paying out the mortgage and some don’t,” says mortgage broker Shayne Slinn.
“I am not aware of any lenders that automatically include the prepayment privilege when calculating the penalty. The lawyer, title insurance company or notary ordering the payment statement must ask specifically for it.”
Suppose, for example, you have a $300,000 balance on your mortgage and a $5,000 penalty to get out early. You have not yet used your 20 per cent annual prepayment privilege. So, the penalty will be reduced by 20 per cent, resulting in a $1,000 reduction.
“Clients get misinformation about using the prepayment privilege when they contact their lender for a payout amount,” Slinn says.
He’s seen cases where a borrower’s prepayment is not included in the payout amount if it’s made within the previous 30 days.
Remember that you won’t have to borrow any money to use your prepayment privileges. They just become part of the calculation.
Breaking up is hard to do if you have a closed mortgage. Here’s my advice:
Consult an expert who doesn’t work for your lender, such as a mortgage broker or lawyer.
Ask questions about using your prepayment privileges and staying with the same lender to reduce the penalty cost.
Finally, if you’re misinformed, ask for relief after the transaction closes. Banks look at verbal disclosure and often try to help if you didn’t get the right message.
For all your mortgage needs call: Eduarda (Eddie) Pita - 416-920-9931
Visit us online at www.eddiemac.ca
