“I think it is absolutely fair and necessary to charge an IRD (interest rate differential) penalty. It is the only way mortgage securitization could work and that is the basis of our existence as mortgage brokers,” writes one mortgage broker. “The question is the clarity and simplicity of the disclosure, it should be easy for a layman to understand and it should not require complex future rate inputs.”
The analysis comes off on the heels of a well-publicized story about a borrow and the thousands of dollars in penalties now confronting them.
Shane and Joy Trusz, an Edmonton couple, knew they would be dinged with a penalty and expected to pay the equivalent of three months interest -- $4,000 – but were surprised when TD Bank charged them a much bigger figure, according to CBC News.
“We came out with a figure, it was about $7,000,” Shane Trusz told the CBC. “So, how is TD coming up with $17,000? I have no idea.”
The contract with TD stipulates that the bank will charge an early exit penalty of either three months interest or the Interest Rate Differential.
The bank eventually settled with the couple but it has lead both investors and mortgage brokers to compare big bank practices to their monoline counterparts.
Our profession as brokers is to provide consumers with realistic figures in a transparent manner,” says Lior Hershkovitz of Mortgage Edge. “The penalty cost to break these mortgages through the monolines is one fourth of what it would have cost at the major bank.”
One broker, however, knows one way to ensure clients don’t suffer the same fate, pointing to variable rates, which come without the spectre of IRDs.
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