My_question_is: Canadian-specific
Subject: Closed Mortgage
Expert: taxman at centa.com
Date: Wednesday September 21, 2005
Time: 05:36 PM -0700
QUESTION:
I was surprised to learn that my closed 3 yr 6.5% mortgage is unbreakable
unless is sell my home. Is there any way around this?
Thanks very much for reading this
=========================================================
david ingram replies:
You could also die and break it.
Sometimes it helps to know the reasons behind some rules and clauses in
financial contracts.
At 63, I still come from a time when a 25 year mortgage was a 25 year
mortgage and the rate did not change for 25 years.
In a perfect world, a bank or other financial institution matches funds.
When you take out a $100,000 mortgage at 6 1/2% for 3 years, the institution
would then give someone a 3 year (also closed) term deposit or GIC at 4
1/2%.
That would be the perfect world and what existed for years when life
insurance companies issued most of the mortgages.
Even though the movie was always the evil banker foreclosing on the
mortgage, in reality
When banks and trust companies got into the business in a big way, they kept
the same policies. Then the credit unions came along with local "street
corner" approvals and open mortgages and "prepay any time" mortgages and
took an amazing amount of business away from the banks.
So, the banks started competing and were burned in many cases because they
made their decisions in a downtown Toronto office tower and took away a lot
of the lending decisions from their local managers who became pencil pushers
to a large degree.
I won't even get into the sale of $100,000,000 mortgage portfolios and the
fact that a large percentage of the time, even though you are still making
your payment institution "A", "A" is, in fact, collecting for institution
"XY" to whom "A" has sold the mortgage.
So the answer is that you can or might be able to break it if you whine
enough and pay a 3 or 6 month penalty.
However, the institution does not have to allow prepayment.
Maybe a comment from a couple of the mortgage brokers or bankers on the
board would be in order.
Answers to this and other similar questions can be obtained free on Air
every Sunday morning.
Every Sunday at 9:00 AM on 600AM in Vancouver, I, david ingram am a
permanent guest on Fred Snyder of Dundee Wealth Managers' LIVE talk show
called "ITS YOUR MONEY"
Those outside of the Lower Mainland will be able to listen on the internet
at
www.600AM.com <http://www.600am.com/>
Call (604) 280-0600 to have your question answered. BC listeners can also
call 1-866-778-0600.
Callers to the show and questioners on this board can also attend the
Thursday Night seminars on finance and making your Canadian Mortgage
Interest deductible.
David Ingram's US/Canada Services
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