It may seem an odd question with a very obvious answer but you would be surprised how few people consider this question when approaching their bank for mortgage advice.
When you deal with a bank employee or a mobile mortgage representative (also a bank employee), you need to know that their primary responsibility is to look out for the bank’s best interest. Banks are morally and legally obligated to provide the best return for their shareholders.
This can present an issue, especially if you are seeking unbiased mortgage advice.
In 2009, when a client approached their bank’s mortgage specialist to explore their refinancing option, the specialist had them approved for what they considered to be a good rate with good terms.
The clients happily signed their mortgage documents and went on their way happy with their new terms. If that was the end of the story I wouldn’t be writing this blog, however, that was not the case.
This year, the clients decided to sell their home and move up to a larger house that could accommodate their growing family.
After consulting a realtor, they phoned their bank to find out what options were available to them.
The rate and terms offered by the bank were not competitive with current market offerings so the clients asked what the cost to buy out their mortgage would be.
After using the bank’s online calculator, they figured their prepayment penalty would be in the $5,300 range. Needless to say, the clients were completely floored when the bank representative told them their penalty would be in the neighbourhood of $22,000.
After several moments of shock, the clients asked the representative how this could be. The answer they received was that their specialist had provided them with a discounted rate on their last refinance and because of that they were penalized an additional 1.85% in their penalty calculation which accounted for the additional $16,000.
In the end, the additional penalty did not leave the client with enough equity in their home to sell and purchase a new property.
So that rate that the clients received resulted in a considerable amount of hardship down the road.
Jean-Guy Turcotte is mortgage broker with Dominion Lending Centres – Regional Mortgage Group.