Penalty Boxed: Despite a horrid mortgage market in Q2, banks still booked $5 billion in profits. But they aren’t cutting people much slack on mortgage penalties, even folks who break their mortgage early due to COVID-related income loss—as this CBC story chronicles. Banks have some great mortgage products (e.g., BMO’s Cash Account, Scotiabank’s STEP, HSBC’s open-ended variable, National Bank’s All-in-One, etc.). Moreover, penalties over $1,000 applied to just 1-in-4 of the 47% of people who broke or renegotiated a 5-year fixed early, according to a rates.ca survey this year. That said, most large banks are almost villains when it comes to fixed-rate IRD penalties. CBC cited one report suggesting IRDs are “often higher than 200% of the actual loss incurred by the lender.” When hit with such charges, borrowers often claim ignorance, despite having sign mortgage contracts agreeing to such penalties. But pleading ignorance won’t get you out of paying. With all the media coverage over penalties, bank disclosures and online warnings, it’s time borrowers hold themselves accountable for ignoring prepayment risk and flocking to the largest lenders with the worst penalties. There are more than enough fair penalty lenders out there. Given we can’t rely on the government to regulate penalties, it’s got to be “buyer beware” for now.
Tiff’s Debut: There’s a new sheriff in BoC town. Incoming Governor Tiff Macklem will preside over Wednesday’s Bank of Canada rate meeting, where the Bank will:
Likely do nothing with rates
Continue to buy bonds and support lending
Probably reassure markets with optimism about the recovery
Remind everyone how it’s ready to take any measures reasonably necessary to keep the economy afloat
Potentially provide extraordinary forward guidance like it did during the financial crisis in April 2009. At the time, Canada’s policy rate was the same as today (0.25%), but more stimulus was needed. What the BoC did was promise to keep the policy rate at 0.25% for over a year, so long as inflation risk didn’t jump significantly. That low-rate pledge gave consumers and businesses confidence to borrow and spend. And it worked; 14 months later the economy had rebounded and the BoC started hiking rates.
Upgrades and Your Mortgage: Here’s a look at how builder upgrades can boost your mortgage payment — and occasionally require more income on your mortgage application: Rates.ca story
New Non-Prime Marketplace: Roughly 15% of mortgages are non-prime, says DLC Group, one of the largest mortgage firms in the country. AltHub, which DLC owns, officially launched Monday. It’s a new system whereby non-prime lenders bid on customer applications. It promises to reduce costs for harder-to-place financing. It’s available through brokers only.
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