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I signed a 5 year fixed 6% mortgage two years ago with HSBC, a high ratio one, 10% down payment. Now, the rate is low, so I like to change/cancel it. but the panalty is heavy!!

liuhuaiyu(harry)

Hi,

Glad to find this forum, specificly for Canada.

Here, I need some professional ideas:
I signed a 5 year fixed 6% mortgage (posted rate is 7.50 at that time, I got 1.5% discount, very good at that time) two years ago with HSBC, a high ratio one, 10% down payment.
Now, the rate is low, so I like to change/cancel it. but the panalty is heavy!!
the panelty is not just 3 month interest. the panelty will be 36 month interest difference: 7.5% - 5.8% = 1.7%. ends up over 10K.
Now I am having bellow questions and thoughts:
is that over 10K panelty reseanable? (by the mortgage contract is it lawful, but I assume bank should be flexible.)

Any suggestions that I can cancel the mortgage without paying over 10K penalty?

I appreciate any feed in, thanks!

(#1249937@0)
Last Updated: 2003-6-20
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枫下家园 / 住房话题 /
tor
Toronto Area

I signed a 5 year fixed 6% mortgage two years ago with HSBC, a high ratio one, 10% down payment. Now, the rate is low, so I like to change/cancel it. but the panalty is heavy!! -liuhuaiyu(harry); 2003-6-20 {773} (#1249937@0)
Hi,

Glad to find this forum, specificly for Canada.

Here, I need some professional ideas:
I signed a 5 year fixed 6% mortgage (posted rate is 7.50 at that time, I got 1.5% discount, very good at that time) two years ago with HSBC, a high ratio one, 10% down payment.
Now, the rate is low, so I like to change/cancel it. but the panalty is heavy!!
the panelty is not just 3 month interest. the panelty will be 36 month interest difference: 7.5% - 5.8% = 1.7%. ends up over 10K.
Now I am having bellow questions and thoughts:
is that over 10K panelty reseanable? (by the mortgage contract is it lawful, but I assume bank should be flexible.)

Any suggestions that I can cancel the mortgage without paying over 10K penalty?

I appreciate any feed in, thanks!

据一个broker讲，好像通过和自己银行交涉，可以有两个结局1）银行同意给你降一点利率，但不可能是当前的最好利率；2）狠罚你一笔（根据合同），你可以转到任何一个银行去得到最好利率 -lakeshore(lakeshore); 2003-6-20 {123} (#1249965@0)
问题是法多少？值不值得。我也担心1，2年后，利率又涨回去，再签一个3/5年的，又要吃亏。现在的低利率，如果罚的不多也许是值得的）

if the penalty is 3 month interest, it will worth to cancel and renew. but if the penalty is the rate difference, then too much. Seems my bank won't give me a lower rate. I am trying to find ways, -liuhuaiyu(harry); 2003-6-20 {113} (#1250019@0)
I am trying to find ways, like borrow money from another bank with lower rate to pay the 10% principle each year.

Sounds like a good plan...but not very practic, boz it's almost imposible to get a loan at a rate lower than the prime rate except mortgage. Line of credit is just a good example. Unless... -questionmark(洗洗睡吧); 2003-6-20 {211} (#1250032@0)
unless the prime rate drops to a very low level, say 3%, and you've got a line of credit at PrimeRate+1.5, then it's a smart way to pay your mortgage from your line of credit. Anyway, it's kind of balancing.

Agree, another way is make a second mortgage to pay the 10%. I will save around 25k in interest for these 5 years if I go from one year fixed to one year fixed 2 years ago. Made a wrong decision. -liuhuaiyu(harry); 2003-6-20 (#1250074@0)

Hindsight is always 20/20:) can you get a 2nd mortgage owning only one house? -questionmark(洗洗睡吧); 2003-6-20 (#1250135@0)

yes. but second mortgage will be paid after first mortgage is paid off if the house goes for foreclosure. so second mortgage normaly has higher rate. one thing I don't know is: -liuhuaiyu(harry); 2003-6-20 {177} (#1250291@0)
Whether can I get a second mortgage if my first mortgage + second mortgage will exceede 75% of my house value.
the banker told me I can't get second mortgage, because of that.

that's the idea of second mortgage, hehe -beetgrey(Girl Interrupted); 2003-6-20 (#1250183@0)

This is commen trap from certain bank who offers special rates. One needs to read the contract carefully and know what you have signed, including the panalty. You could try to talk to your bank and try to negotiate. -dundas888(登达寺); 2003-6-20 (#1250158@0)

But as I know, almost all the customer signed the same contract, it is a standard contract, even another offer I got from a broker has the same penalty. Anybody has experience -liuhuaiyu(harry); 2003-6-20 {107} (#1250303@0)
Anybody has experience to ask the bank remove that penalty description? or change that penalty description?

Most bank will ask for panalty of 3 month interests depends on how long is your term. Obviously in this case, HSBC offered you something different. -dundas888(登达寺); 2003-6-20 (#1250319@0)

no, it's same in Scotia, they will compare which is higher between the interest difference and 3 months interest, and choose the higher one. -beetgrey(Girl Interrupted); 2003-6-20 (#1250327@0)

u are right -zxcvb(朝天椒); 2003-6-20 (#1250342@0)
This kind of deal protects only the bank. There is no way you can get out. -dundas888(登达寺); 2003-6-20 (#1250687@0)

HSBC is infamous in mortgage penalty. HSBC is not flexible at all. -albxu(Yukon); 2003-6-20 {1743} (#1250341@0)
本文发表在 rolia.net 枫下论坛So far I know that Scotia is better regarding the term condition of closed fix rate mortgage.

Normaly Scotia mortgage is have a close-close period and a close-open period within a term.

in your example, 5 year term, the first 2 years are considered as close-close period. The rest of other 3 years are considered as close-open period.

Within close-close period, if you renew your mortgage you have to pay the interest difference for the rest of the term. If you switch mortgage or discharge your mortgage you pay the interest for the rest of the term as penalty.

If you're in the close-open period you pay maximum 3 month interest plus admin fee for penalty.

This was written in my previous mortgage renew letter from Scotia two years ago. I don't know if Scotia still have it or not since I don't do banking with Scotia any more.

Penalty clause is really hard to negotiate.

BTW, in your case, even you pay the penalty, I don't think you're getting any benefit renewing it with the new rate. Paying the penalty technically means you're still getting your old rate for your current term (6.0 for 5 years, not mentioning that if you do pre payment you may decrease your overall interest a lot.)

The benefit (if there is any) comes to the additional 2 years (I assume that you're renewing to another 5 year. But even the new rate is low it can't compete to the low rate for 1 or 2 year term. I don't think it's a good idea to re-new to such a new term.

Also one thing I don't understand is that why the penalty is calculated based on posted-rate rather than actual contract rate. Interest difference on the contact rate is the real thing the bank cares. Is that because you're using them only as an example?更多精彩文章及讨论，请光临枫下论坛 rolia.net

hehe, it's same for Scotia, several friends told me DO NOT CHOOSE SCOTIA just because of the penalty -beetgrey(Girl Interrupted); 2003-6-20 (#1250371@0)
to answer your last question: yes, they use the posted rate (7.5% at that time, my actual rate is just 6%) that's how they can make the interest difference big. -liuhuaiyu(harry); 2003-6-23 (#1254015@0)

@PEI

I signed a 5 year fixed 6% mortgage two years ago with HSBC, a high ratio one, 10% down payment. Now, the rate is low, so I like to change/cancel it. but the panalty is heavy!!

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