TD Bank charges $30,000 mortgage penalty to woman forced to sell home due to pandemic
When the pandemic hit Ontario, Kristina Barybina's income as a real estate agent dried up and she knew the writing was on the wall — she'd have to sell her own house.
She also knew there'd be a penalty for getting out of her five-year mortgage with TD Bank early — she just wasn't expecting it to be almost $30,000.
Barybina requested a one-month deferral on her mortgage, but says she quickly realized that deferring it any longer would just be pushing debt she couldn't pay further down the road.
She was only 19 months into a five-year mortgage, with a fixed-rate of 3.71 per cent, and still owed $591,000. TD used a controversial calculation to arrive at the penalty for breaking the terms. She owed another $29,530.
All of Canada's big banks use similar methods for calculating what penalty people owe if they end a fixed-rate mortgage early.
They can either charge three months' interest or what's called the interest rate differential (IRD) — whichever is higher.
The IRD is a calculation involving the difference between the interest rate on the negotiated mortgage, the bank's current posted fixed interest rate and the length of time remaining on the contract.
Banks argue they lose anticipated revenue from their client if they end the mortgage prematurely.
When the Bank of Canada lowers interest rates, the banks' posted fixed rates also drop, increasing the penalties for people breaking fixed-rate mortgages.
"TD is profiting by collecting this ridiculous amount of penalty, which is only based on the fact that the interest rate posted by Bank of Canada is so low — which was done to help people," said Barybina. "It's heartless."
Had the bank used the option of charging three months' interest, Barybina says she would only have owed $3,000.
