{"id":2457,"date":"2015-06-13T17:09:50","date_gmt":"2015-06-13T17:09:50","guid":{"rendered":"https:\/\/auburnbaysetonhomes.com\/?p=2457"},"modified":"2015-06-13T17:09:50","modified_gmt":"2015-06-13T17:09:50","slug":"mortgage-penalty-broker-lender-penalty-vs-bank-penalty","status":"publish","type":"post","link":"https:\/\/auburnbaysetonhomes.com\/?p=2457","title":{"rendered":"Mortgage Penalty-Broker Lender Penalty vs. Bank Penalty"},"content":{"rendered":"

The difference between a Broker lender Penalty and a Bank Penalty. \u00a0It’s huge.<\/h1>\n

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This article brought to us by Trilogy Mortgage Corporation explains the differences between a broker lender mortgage penalty and a bank mortgage penalty.<\/h2>\n

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When choosing between mortgages, knowing how different lenders calculate penalties can be essential. The market and your needs can easily shift during the term of your mortgage and the last thing you want is a painful penalty in order to get out early.<\/p>\n

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Penalty formulas differ radically, depending on the lender. A major bank, for example, will have a considerably higher penalty than a broker-only wholesale lender. Advice on how to avoid painful penalties is a key benefit of working with a mortgage broker.<\/p>\n

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You need to ask one important question right off the bat: What rates does the lender use to calculate its penalty? The actual discounted rates that people pay, or some artificially high posted rate? Hopefully the former.<\/p>\n

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Below is an example of how two lenders calculate the same \u201cinterest rate differential\u201d penalty in different ways. Ask yourself, which one would save you the most money?<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
Penalty #1–Broker Lender<\/strong><\/td>\n<\/td>\n<\/tr>\n
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Contract Rate (The rate you actually pay)<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/td>\n

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4.19%<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/td>\n<\/tr>\n

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Current Rate (Today\u2019s new rate, closest to your remaining term)<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/td>\n

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3.09%<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/td>\n<\/tr>\n

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Differential (Contract Rate \u2013 Current Rate)<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/td>\n

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1.10%<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/td>\n<\/tr>\n

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Remaining Balance<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/td>\n

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$229,000<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/td>\n<\/tr>\n

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Penalty Formula: Remaining Balance x Differential \u00f7 12 x Remaining Months<\/em><\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/td>\n

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$3,358.67<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/td>\n<\/tr>\n

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TOTAL APPROXIMATE PENALTY<\/strong><\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/td>\n

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$3,358.67<\/strong><\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/td>\n<\/tr>\n

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Penalty #2 \u2013 Major Bank<\/strong><\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/td>\n

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Contract Rate (The rate you actually pay)<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/td>\n

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4.19%<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/td>\n<\/tr>\n

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Current Posted Rate (Today\u2019s new posted rate, closest to remaining term)<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/td>\n

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3.39%<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/td>\n<\/tr>\n

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Original Posted Rate (At the time you got your mortgage)<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/td>\n

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5.99%<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/td>\n<\/tr>\n

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Original Discount (That you received off the Original Posted Rate)<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/td>\n

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1.80%<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/td>\n<\/tr>\n

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Differential (Contract Rate \u2013 (Current Posted Rate \u2013 Original Discount))<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/td>\n

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2.60%<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/td>\n<\/tr>\n

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Remaining Balance<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/td>\n

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$229,000<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/td>\n<\/tr>\n

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Remaining Months<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/td>\n

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16<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/td>\n<\/tr>\n

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Penalty Formula: Remaining Balance x Differential \u00f7 12 x Remaining Months<\/em><\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/td>\n

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$7,938.67<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/td>\n<\/tr>\n

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TOTAL APPROXIMATE PENALTY<\/strong><\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/td>\n

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$7,938.67<\/strong><\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

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As you can see, there can be quite a difference in prepayment charges when you leave a lender early \u2013 over $4,500 in this example. And this is a modest hypothetical calculation. Bank<\/p>\n

discounts today are on the order of 2.00 percentage points off posted, instead of the 1.80 I\u2019ve used here.<\/p>\n

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Some lenders will even charge an abnormally high penalty (like 3% of principal) despite you being close to the end of your mortgage term. They do this as a retention tool to keep you from leaving. Others will charge a \u201creinvestment fee\u201d on top of the penalty, tacking on another $100 to $500 in expenses.<\/p>\n

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In short, penalties can be thousands\u2014or even tens of thousands\u2014higher depending on the lender\u2019s specific calculation formula, mortgage amount, rates and time remaining until maturity. Extreme penalties are not only more expensive, they can even keep borrowers from moving because the amount eats into the money they\u2019ve got for a down payment and closing costs.<\/p>\n

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Worse yet, some lenders have a \u201csale only\u201d clause in their mortgages, meaning you can\u2019t even leave them unless you sell the home. If you think, \u201cOh, that\u2019s no big deal. I don\u2019t plan on selling,\u201d think again. Throughout every path in life, there are moving parts and uncertainties. When you get married, do you plan on divorcing? Likely not. Did you predict the company you were with for 20 years could downsize, or your pension would be reduced or cut? Can you guarantee your health will never throw you a curve ball?<\/p>\n

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We all want to believe that none of the above scenarios will come to pass, but they can and do. And when they do, what a relief it is to have options.<\/p>\n

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And last but not least, there is the refinance consideration. If interest rates fall 0.5-0.8%, (which may seem unlikely but is certainly a possibility) there may be opportunities to lower your borrowing costs. But you can\u2019t do that unless you\u2019ve got a low-cost way to renegotiate your existing contract. And as we\u2019ve seen above, that cost is not based on just your interest rate alone.<\/p>\n

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Canadian Mortgage Trends June, 2015<\/p>\n<\/div>\n

 <\/p>\n<\/div>\n<\/div>\n<\/blockquote>\n","protected":false},"excerpt":{"rendered":"

The difference between a Broker lender Penalty and a Bank Penalty. \u00a0It’s huge.   This article brought to us by Trilogy Mortgage Corporation explains the differences between a broker lender mortgage penalty and a bank<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"footnotes":""},"categories":[38],"tags":[46,45,44],"class_list":["post-2457","post","type-post","status-publish","format-standard","hentry","category-education-blog","tag-bank-penalty","tag-broker-penalty","tag-mortgage-penalty"],"_links":{"self":[{"href":"https:\/\/auburnbaysetonhomes.com\/index.php?rest_route=\/wp\/v2\/posts\/2457","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/auburnbaysetonhomes.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/auburnbaysetonhomes.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/auburnbaysetonhomes.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/auburnbaysetonhomes.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=2457"}],"version-history":[{"count":0,"href":"https:\/\/auburnbaysetonhomes.com\/index.php?rest_route=\/wp\/v2\/posts\/2457\/revisions"}],"wp:attachment":[{"href":"https:\/\/auburnbaysetonhomes.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=2457"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/auburnbaysetonhomes.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=2457"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/auburnbaysetonhomes.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=2457"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}