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decoding the mortgage market

Most Canadian home owners don't know how much it would cost them to break their mortgage before the maturity date. But with penalties potentially in the thousands of dollars, they should.

That's why Ottawa is pushing lenders to disclose penalties in a way that's "clear, simple and not misleading." Last week, the Finance Department said it's expanding a voluntary mortgage disclosure program to all lenders in Canada, not just the banks. Kudos to that.

But despite regulators' efforts and improved disclosures, it's still difficult to compare lenders by their penalties. The banks' answer is their online penalty estimators, but those are tedious at best and baffling at worst. What consumers really need is for lenders to lay out their penalties in a standard, easy-to-compare and easy-to-understand format. And it's up to Ottawa to make that happen.

The problem with today's breakage fee calculators is that lenders often ask for such vague or inconvenient information, that people just give up on using them. Take this question, found on the site of one of Canada's big banks: "The discount I received to obtain my rate is ____?"

Few borrowers would remember that without digging through old paperwork, searching online or calling their bank. Lenders, by the way, want you to contact them about your penalty. That way, they can ask you why you want a penalty quote and talk you out of leaving.

The effort it currently takes to estimate mortgage break penalties discourages most people from comparing them at all. And that's a disservice to consumers. Given how much money people are borrowing to buy homes these days, Canadians deserve more than lengthy disclosures and ambiguous calculators.

One possible solution

In order to better assess which lender is offering them the lowest total cost of borrowing, mortgage shoppers must grasp how big the penalty for breaking their contract early might be. One way to actually help shoppers get this information is for lenders to provide penalties in a standardized way that can easily be compared.

On its website, for example, each bank could display a simple table showing a range of potential penalties for a $100,000 mortgage. A round number mortgage like $100,000 lets you quickly multiply the penalty to correspond to your own mortgage amount.

These hypothetical penalty estimates could be displayed under different assumptions, including:

  • a mortgage that’s broken one, two or three years early (assuming a five-year fixed mortgage)
  • cases where the lender’s current rates rose 1 per cent, fell 1 per cent or stayed the same.

Here's how it might look:

Penalty per $100,000 of mortgage


Years Until Renewal

1 yr

2 yrs

3 yrs

If rates rise 1 per cent




If rates stay the same




If rates drop 1 per cent




Average for these scenarios


This sort of table would let consumers instantly visualize potential prepayment charges. People could then quickly compare lenders to see which ones stick it to their customers the worst.

Of course, all lenders would need to use the same format. Otherwise it would be too hard to compare apples to apples. But that's easily achievable once regulators settle on a suitable layout.

The government could go a step further by asking lenders to disclose what percentage of borrowers they charge with penalties. That could give people even more clues on how competitive a lender is.

Only Ottawa can make that happen

Asking mortgage shoppers to run complex hypothetical calculations on multiple lenders is unrealistic and makes today's penalty disclosures largely irrelevant for comparison shopping. And that's important because steering clear of high-penalty lenders can sometimes keep thousands of dollars in your pocket.

Canadians need a fast way to measure the penalty magnitude of different lenders without powering up their calculators. Mortgage brokers can be a good resource for these calculations, but not everyone uses brokers. And many lender representatives are less than helpful in estimating their own penalties, let alone another lender's.

Most banks and "no frills" lenders will certainly not provide this of their own accord. Why would they? Their penalties are among the highest in the country.

Finance Department. Your help is required.

Robert McLister is a mortgage planner at intelliMortgage Inc. and founder of You can follow him on Twitter at @RateSpy

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