American who sold home in Toronto shocked by $47,000 mortgage penalty
TORONTO -- An American who lived in Canada for two and a half years says he was “shocked” and then “angry” after being told he had to pay a massive mortgage penalty when he sold his house.
David Krattli and his family moved to Toronto for work and at the time, when he bought a home, he signed a five-year fixed mortgage. Krattli says there was always the chance they would move back to the United States before the five years was up.
“As far as mortgage products that we were interested in, we weren't interested in anything that had a prepayment penalty," Krattli said.
Due to the pandemic, Krattli said they decided to move to Seattle for work and to be closer to family so they sold their house in Toronto and bought one there.
Krattli says he and his wife were in shock when on signing the closing paperwork they were told there was a mortgage prepayment charge of $47,291.
“We basically got stuck. We had gone through the whole process and we got handed this bill at the end that we had no idea was coming" said Krattli.
Krattli signed the mortgage with CIBC.
In a statement to CTV News Toronto, a spokesperson for CIBC said, “We dispute the version of events that is being reported. A fixed rate mortgage gives clients peace of mind that their rate is guaranteed for the term they choose. In cases where a client wishes to prepay their mortgage before their chosen term is up, a cost is incurred by the bank and a prepayment charge can apply which is detailed in the documents clients sign with their lawyer when purchasing a home, as was the case in this situation.”
Krattli said he was unaware there would be such a huge penalty because in the United States mortgages are handled differently.
“There are some mortgages in the United States where there are no penalties whatsoever and by and large the penalties are much lower in the U.S. (than in Canada),” Justin Thouin, the President of Lowestrates.ca said.
Thouin said when someone breaks a variable rate mortgage the largest penalty you would have to pay is generally three months interest. However, when breaking a fixed rate mortgage, the calculation used is interest rate differential, which is often much higher.
“It's in these five-year fixed mortgage arrangements that you are seeing these massive penalties because of the huge difference in rates now versus two or three years ago," Thouin said.
Krattli feels he was not made aware of the penalty and says he won't give up trying to get back the $47,000.
“It's huge sum of money and with all these other things going on, it's just not right," Krattli said.
If you might have to break your mortgage early it may be better to sign a variable rate contract to avoid a huge penalty.
When negotiating mortgage terms be sure to discuss early pre-payment charges with your bank or mortgage broker before locking into any mortgage.