An Edmonton couple say they were shocked when their bank manager told them it would cost $17,000 for them to end their five-year fixed mortgage early.
Shane and Joy Trusz say they were expecting to pay a penalty of three months interest, which would have been less than $4,000.
Under the mortgage contract, TD Canada Trust had the right to calculate the penalty using either three months interest or the Interest Rate Differential (IRD).
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The IRD is based on a complicated mathematical formula that includes the principal owing, the months remaining on the mortgage’s term, and a comparison of the interest rate the client is paying versus the rate the bank would charge for the remainder of the term.
Even after using TD’s IRD calculator, Shane Trusz said he couldn’t understand the amount TD was going to charge.
“We came out with a figure, it was about $7,000,” Shane Trusz said. “So, how is TD coming up with $17,000? I have no idea.”
Trusz said he expected TD Canada Trust, with whom they have banked for almost 20 years, to make an exception in their case, because they are selling their possessions to do humanitarian work.
Family selling home and moving to Haiti to run orphanage
For the past two years Trusz has been a board member of the Haitian Children’s Aid Society (HCAS). He’s made three trips to Haiti to help reconstruct an orphanage for 60 children in Mirebalais, in the centre of the earthquake-damaged country.
“We have some money set aside for project costs, to buy land, create businesses. We’re going to be using our own money to do that – and so when all of a sudden we’re going to have $17,000 less than we thought we were going to have, we see that in human terms.”
“The last time I was there I lent a Haitian $2,700 to build his first home with indoor plumbing,” Trusz said. “He has two girls, so they’re going to live in a house with a toilet and a sink for the first time in his life.”
Trusz said the TD branch manager was initially encouraging and asked him to submit a letter of reference from HCAS describing its work and the Truszes’ role.
The branch manager’s three-sentence email response came less than a week later, saying TD had declined to reduce the penalty to three month’s interest and that an appeal submitted by the bank’s district vice-president was also declined.
“I was devastated,” Trusz said. “We’re laying down everything we love about this world, living here in Canada, to go and help people. So, if you can’t make an exception for that, what would you make an exception for?”
'Banks do what they want,' industry expert says
Most consumers have no idea the size of penalty they will be paying to get out of a fixed mortgage early, says Richard Beaumier, Vice-President of the Political Action Committee of the Quebec Federation of Real Estate Boards.
“As a consumer, you will always have a huge penalty – even if the rates are flat, like we have seen since a few years [back],” Beamier said.
Beamier said nothing has changed in the interceding four years.
“Our governments do nothing, the banks are doing what they want,” said Beaumier, who is seeking the Liberal nomination in a Quebec federal riding.
Beaumier suggested TD’s $17,000 penalty is probably an accurate calculation of the IRD, and could even rise the longer they wait.
Beaumier suggests banks are applying a contract the customer willingly signed, but said such penalties are often twice as high as the bank needs to cover its actual costs and foregone revenue.
“This is not a penalty,” he said. “This is a penalty, plus a cost reimbursement, plus an overcharge.”
Beamier said it’s in banks’ financial interests for consumers to end their mortgages early and that he believes mortgage penalties make up a significant part of Canadian banks’ profits.
He said American banks manage to remain profitable but have much lower, even non-existent mortgage penalties.
In the first six months of 2014, TD Canada Trust’s overall profit was over $4 billion.
TD makes new offer after call from Go Public
Trusz said he called CBC Go Public after TD told him he had no more avenues for appeal.
After Go Public contacted TD asking for comment, the bank made the Truszes an offer.
In an email, TD spokeswoman Lynzey MacRae said the Truszes are happy with the offer, but cited “privacy reasons” for not providing details of the settlement.
MacRae said the IRD is designed to ensure a bank won’t suffer when a customer decides to end a mortgage before its maturity date.
She said TD policy is to make exceptions for military personnel, or in some cases for compassionate reasons, which it evaluates on a case by case basis.
“I’m under no illusions they have to cater to the shareholder, but I think they’re getting more and more short-sighted as they get bigger and bigger. This could have been a great publicity thing for them and meant the world to us.”
When contacted by Go Public again, Trusz confirmed he had accepted the bank's offer but would not comment further.