Class action lawsuit against CIBC over unfair penalty calculations

[tpurcell4]

http://www.mortgagebrokernews.ca/new...st-cibc/107121

I thought this was a great article and needed to be shared. Banks get away with charging absurd penalties just because they have posted and discounted rates and what most people do not when signing their mortgage documents is on top of the IRD calculation (balance remaining x (contract rate - current rate for term remaining) x term remaining) banks also include the original discount off the posted rate in the calculation. So add another 3/4 to 1.5% into the rate differential and watch your penalty increase exponentially.

A problem you don't have to worry about with non-bank A Lenders where you get best rates, full pre-payment privileges and great service.

[Zewind]

Bahahahaha love it

[Tik-Tok]

I can't speak about those contracts in the class action lawsuit, but my mortgage contract with CIBC is pretty damn clear about what I owe if I back out early.

IMO just another example of people being idiots, and not reading what they're signing. This part of the story says it all.

has presented a major impediment to helping clients take advantage of historically low rates by switching or refinancing clients before maturity, argue many mortgage professionals

So you sign a X year term thinking the rates weren't going to be any lower during that term... then you get pissed off that they do drop, and start whining when you want to change?

[tpurcell4]

Originally posted by Tik-Tok
I can't speak about those contracts in the class action lawsuit, but my mortgage contract with CIBC is pretty damn clear about what I owe if I back out early.

IMO just another example of people being idiots, and not reading what they're signing. This part of the story says it all.



So you sign a X year term thinking the rates weren't going to be any lower during that term... then you get pissed off that they do drop, and start whining when you want to change?

That maybe true and on the cost of borrowing document they sign at the lawyers office should outline the details around the "Greater of 3 months interest or IRD", and maybe they needed to be better informed by their banker that they would not have the inflated IRD should they choose to go with a reputable non-bank A lender. But the major banks do not give that option last I checked.

[Tik-Tok]

Originally posted by tpurcell4

But the major banks do not give that option last I checked.

They shouldn't have to, really. Banks aren't forcing people into their mortgage, why should they advertise their competitions better options? People have a choice of where to go, and the internet has ALL the information you need to make an informed decision.

No matter what the subject, if someone hands me a contract and says "Here, sign this." I'm going to make damn well sure I understand what I'm signing. If I had a problem with CIBC's contract, I would have just said "Change this, or I'm going elsewhere".

People are just idiots, and they're suing the bank because of they're own stupidity. End of story.

[TomK]

Originally posted by Tik-Tok

People are just idiots, and they're suing the bank because of they're own stupidity. End of story.

When I signed my last mortgage (RBC) I made a point to read the document and I remember receiving the 25 pages and thinking, "holey shit, whats in here?"

There was approximately 4 pages of actual content. The rest was the ideas contained in the previous 4 pages expressed over and over and over and over again.

My lawyer figured it was a product of decades of litigation. Just people getting foreclosed and claiming they weren't warned about whatever...

[dezmarez]

Originally posted by tpurcell4


I thought this was a great article and needed to be shared. Banks get away with charging absurd penalties just because they have posted and discounted rates and what most people do not when signing their mortgage documents is on top of the IRD calculation (balance remaining x (contract rate - current rate for term remaining) x term remaining) banks also include the original discount off the posted rate in the calculation. So add another 3/4 to 1.5% into the rate differential and watch your penalty increase exponentially.

A problem you don't have to worry about with non-bank A Lenders where you get best rates, full pre-payment privileges and great service.

What full pre-payment privilages are you talking about?
Do you mean to say all non-bank A lenders, have completely open fixed rate mortgages?

The calculation is pretty clear in most bank documents....

For example in a certain bank the information is presented as the following....

IRD Interest Rate Differential Amount: This means an mount, calculated at an interest rate equal to the IRD, on the amount you prepay, for the reamining term of your Mortgage Loan. The IRD is the difference between: a) the Annual Interest Rate and b) the posted interest rate, less any rate reduction or dicount received by you under the Mortgage Loan, for a Similar Mortgage. A Similar Mortgage is a mortgage offered by us which has a fixed interest rate and a closed term that is closest to the remaining term of your Mortgage Loan. The interest rate for a Similar Mortgage is determined on the earlier of the date of the prepayment or the date of issuance of a valid official statement for discharge purposes

Now the documents go on to explain how to caluclate these amounts, and that the original discount is factored into the equation.

[tpurcell4]

What full pre-payment privilages are you talking about? Do you mean to say all non-bank A lenders, have completely open fixed rate mortgages?

I'm talking apples to apples. For any closed product, where there are penalties for early repayment, banks (at least the banks we work with, TD, Scotia, ATB, CIBC, National Bank, Canadian Western, ING, etc...) offer a range from 15% to 25% lump sum payments, as well as added to the monthly payment. The same as non-bank A lenders offer the same. Getting into open mortgages is a completely different field in which you don't have to worry about payout penalties and is really irrelevant to the topic at hand. Yes, for a fixed rate open mortgage the pre-payment privileges are non existent as you can pay it off any time, which is great for those who have to means to pay off the entire mortgage before the end of the term, but that comes at a premium.

So I will only talk about fixed closed mortgages as was the topic of the article.

For example in a certain bank the information is presented as the following.... IRD Interest Rate Differential Amount: This means an mount, calculated at an interest rate equal to the IRD, on the amount you prepay, for the reamining term of your Mortgage Loan. The IRD is the difference between: a) the Annual Interest Rate and b) the posted interest rate, less any rate reduction or dicount received by you under the Mortgage Loan, for a Similar Mortgage. A Similar Mortgage is a mortgage offered by us which has a fixed interest rate and a closed term that is closest to the remaining term of your Mortgage Loan. The interest rate for a Similar Mortgage is determined on the earlier of the date of the prepayment or the date of issuance of a valid official statement for discharge purposes Now the documents go on to explain how to caluclate these amounts, and that the original discount is factored into the equation.

This shows that yes it is outlined here, but again, the point is educating away from just going straight to the bank where you will be trapped by this clause, when you can go to a mortgage broker, get the best rate offered up front, and have the option of not dealing with a major bank in order to have

b) the posted interest rate, less any rate reduction or dicount received by you under the Mortgage Loan

this clause replaced with "the contract rate received by you under the mortgage loan".

That simple change can save people thousands, upon thousands of dollars, when life happens. Example: Couple gets divorced and must refinance in order to split assets.

[bignerd]

Meh, having worked for both I will say mortgage brokers are not the end all and be all of mortgages.

With rates as low as they are today why even bother locking in your rate? Variable (open) and fixed rates are pretty comparable and will be so for a while.

[Team_Mclaren]

so you work with most major banks where the clause is exactly the same, but you say its better to deal with a "A-lender" (what does that even mean?) because why again? Regardless of rates, because we can go on and on about whos better. That is irrelevant to this situation.

[bignerd]

B lenders are places like "Aaron Acceptance Corp" or companies that will place private second (sometimes even third) mortgages on properties, basically lenders that accept crap clients and charge ridiculously high rates and fees.

[Team_Mclaren]

^^ learn something new everyday

[dezmarez]

Originally posted by tpurcell4


I'm talking apples to apples. For any closed product, where there are penalties for early repayment, banks (at least the banks we work with, TD, Scotia, ATB, CIBC, National Bank, Canadian Western, ING, etc...) offer a range from 15% to 25% lump sum payments, as well as added to the monthly payment. The same as non-bank A lenders offer the same. Getting into open mortgages is a completely different field in which you don't have to worry about payout penalties and is really irrelevant to the topic at hand. Yes, for a fixed rate open mortgage the pre-payment privileges are non existent as you can pay it off any time, which is great for those who have to means to pay off the entire mortgage before the end of the term, but that comes at a premium.

So I will only talk about fixed closed mortgages as was the topic of the article.



This shows that yes it is outlined here, but again, the point is educating away from just going straight to the bank where you will be trapped by this clause, when you can go to a mortgage broker, get the best rate offered up front, and have the option of not dealing with a major bank in order to have this clause replaced with "the contract rate received by you under the mortgage loan".

That simple change can save people thousands, upon thousands of dollars, when life happens. Example: Couple gets divorced and must refinance in order to split assets.

The reason I brought up an open fixed mortgage is you were stating that mortgages that are at a non-bank lender have "full repayment privileges" this is vague, I was assuming you meant that they are open. What full repayment privileges are you talking about?

The penalties are clearly explained in the mortgage document, and a formula is given in the actual mortgage agreement how to calculate the IRD. Any customer could theoretically check to see what their penalty would be if interest rates went to certain points. Before the mortgage is even advanced to them.

If people don't want a fixed term mortgage there are plenty of other options available to them.

Open Fixed Rate Mortgage, Open Variable Rate Mortgage, HELOC.

If people aren't comfortable locking in rates, then they shouldn't be signing up for fixed term mortgages. It is pretty simple.

It is like an investment customer who locks in a rate for 5 years, and comes back in 2 years later looking for a higher interest rate. It isn't how the system works, and there are plenty of alternatives.

[tpurcell4]

^^

That's fair and for those with which those options are available they are good options. But not everyone can qualify for a variable, open variable, fixed variable or HELOC. But for those who cannot, they should get the best options available to them in case they do need to, or want to get out. There are still penalties, but why get penalized on the penalty even further.

And sorry for the vague use of full pre-payment options. A better term would have been competitive.

[tpurcell4]

Originally posted by bignerd
B lenders are places like "Aaron Acceptance Corp" or companies that will place private second (sometimes even third) mortgages on properties, basically lenders that accept crap clients and charge ridiculously high rates and fees.

That's mostly true.
A lenders include the banks, and mortgage companies such as First National, Street capital, Paradigm quest (Merix, Lendwise, Canadiana, etc) and more.

Basically these are lenders who only deal with the strongest borrowers.

B lenders are equity lender such as equitable trust, home trust, etc. They are more accepting of credit issues. They are not as accepting as private lenders but more, and their rates are around posted rates.

Private lenders will do anything, no credit, no employment verification is required usually. As long as you have high equity and are willing to pay their fees (3-7%) and interest rates which vary from posted to 15% or higher depending on the equity position.

Then there are loan sharks. But those you have to find in a back alley some where. (JK)

[dezmarez]

Originally posted by tpurcell4
^^

That's fair and for those with which those options are available they are good options. But not everyone can qualify for a variable, open variable, fixed variable or HELOC. But for those who cannot, they should get the best options available to them in case they do need to, or want to get out. There are still penalties, but why get penalized on the penalty even further.

I understand that not everyone can qualify for those products, but people could have the same argument for CMHC. Well i can't qualify for conventional lending, but I don't want to pay CMHC. Well that isn't going to happen. No one is forcing them to purchase a property, and take a fixed term mortgage. Again there are a number of alternatives, and in the documents it is explained in great detail how the penalty is calculated, so I dont really understand your "There are still penalties, but why get penalized on the penalty even further" argument.

At the end of the day it is simple, don't sign a fixed term contract if you think at any point in time you are going to break that contract.

But it is what it is. You will argue your point, I won't agree just like you will argue yours and I will just see it as you trying to push your mortgages as superior

[revelations]

Originally posted by tpurcell4
Private lenders will do anything, no credit, no employment verification is required usually. As long as you have high equity and are willing to pay their fees (3-7%) and interest rates which vary from posted to 15% or higher depending on the equity position.

Is this also known as "hard money" in the industry?

[tpurcell4]

^^

Yes it is