What is a mortgage discharge fee?

I received an email from someone who found my website on the internet, asking me why they were charged a discharge fee, by their bank, when they paid off the full balance of their mortgage. This was a fee that they were surprised to see and they were checking with me to see if that was a valid charge that they had to pay.

I explained to this person that this was most definitely a valid fee and that they should go back to their original mortgage contract/mortgage commitment to read the fine print, listed somewhere in their document. If you refer to the fine-print of your mortgage agreement/commitment, you will see it there listed under a “fees” section and it will list all standard fees borrowers will pay in certain situations, for example, service fees, assignment/transfer fee, processing fee, default charges/missed payment fee, as well as the discharge fee, as well as other possible fees related to the mortgage.

Here are a few situations where you would be required to pay a discharge fee:

1) if you pay off your entire mortgage balance;

2) if you switch from your current bank, to another bank, and register a new mortgage with the new bank.

3) if you sell your home and switch from your current bank to another bank.

The discharge fee is worked out, by your bank, on a simple one page form and it really does seem to be a very excessive fee to pay, for a simple form that may have taken your bank a short time to prepare. Interestingly, the mortgage discharge fee varies from province to province and from lender to lender. Did you know, for example, that in the province of British Columbia, The Financial Institutions Commission (FICOM) which regulates the financial services industry, has stated that a mortgage discharge fee must not exceed $75. You can read about their position at this following link:

http://www.fic.gov.bc.ca/pdf/mortgagebrokers/mb-07-003.pdf

Unfortunately, the Financial Services Commission of Ontario (FSCO) has not created a similar cap on the bank’s mortgage discharge fee in Ontario. While every bank must disclose the discharge fee, in the mortgage contract provided to you, you can also go on-line to see what current published discharge fees are, at any time. Remember, however, that the discharge fee that you see in the mortgage contract you signed, is the fee that you will be charged once there is a need to have a mortgage discharge statement prepared. Bank’s published discharge fees can be viewed at this following link:

http://www.fiscalagents.com/thestar/mtg_disx_sort.shtml

This blog was written by Elizabeth Blair, a Licensed Mortgage Agent with Mortgage Edge in Richmond Hill, Ontario. Elizabeth services mortgage clients in Mississauga and all over the Greater Toronto area.

You can contact Elizabeth directly by phone at (905) 510-5785

by email at eblair@mortgageedge.ca

or you visit her website at: http://www.missmortgage.ca

Elizabeth is licensed with the Financial Services Commission of Ontario and is also a Member of IMBA (the Independent Mortgage Brokers Association of Ontario) http://www.imba.ca

Lic # M08005880

Brokerage Lic # 10680

Head office is located at: 15 Wertheim Court, Suite 210, Richmond Hill, Ontario, Canada.

Mississauga – What exactly is mortgage loan insurance?

As a first time home buyer, you may have heard that you may have to pay a mortgage insurance premium.   

 

You will have to obtain mortgage loan insurance when you purchase a home and if your downpayment is LESS than 20%.  Remember that lenders do reserve the right to insure your mortgage even if your downpayment is greater than 20% and this decision is often based on the risk associated with the financing.    The key players that provide mortgage insurance in Canada today are CMHC, Genworth and AIG United Guaranty.   The newest insurer to join is AIG United Guaranty.   There may be more mortgage insurers joining the industry who may apply to the OFSI (Office of the Superintendent of Financial Institutions) to become mortgage insurers in Canada.  More competition will result in more choice and lower premium costs for Canadians who want to purchase a home.

 

Here is a sample breakdown to help you understand how a mortgage insurance premium is calculated for a buyer who wants to purchase a home with a 5% downpayment.

 

 

Price of home being purchased	(A)  $242,000
Your saved 5% downpayment	(B)  $12,100
Price less downpayment  (A) – (B) =	(C)  $229,900
Insurance Premium calculated for a 5% downpayment is 2.75% of amount $229,900   Total mortgage loan insurance premium is  à	(D)  $6,322.25
Total amount advanced to you by the Lender total mortgage amount   (C)  + (D)  =	$236,222.25
The lender who is reviewing your mortgage application will include the mortgage insurance premium (on your mortgage commitment) as part of your total mortgage loan and this is repaid over the term of your mortgage loan.   You can also pay this premium up-front, on closing date, if you prefer.

 

It is also important to point out that the mortgage loan insurance premium (calculated in example above) is also subject to provincial sales tax and this tax amount is not included in the total loan amount therefore you would have to pay this sales tax on your closing date.

 

Here below is a table that gives you an idea on what the typical mortgage loan insurance premiums are, but you should go directly to the various insurer websites to check the current insurance premiums when you are ready to buy.

The mortgage loan insurance premium charges are calculated as follows:

 

Financing Needed on the Purchase	Insurance Premium
Up to and including 65%	0.50 %
Up to and including 75%	0.65 %
Up to and including 80%	1.00 %
Up to and including 85%	1.75 %
Up to and including 90%	2.00 %
Up to and including 95%	2.75 %

 

 

You may be asking, so why do I need mortgage loan insurance, is it mandatory, and who does it protect?  

 

Why do I need mortgage loan insurance?   It is the lender who requires the mortgage loan to be insured.   The mortgage lender passes along the cost of insuring that mortgage, along to the consumer. 

 

Is mortgage loan insurance mandatory?   No.   There are a few mortgage lenders, on the market, who may provide you with mortgage financing without mortgage loan insurance but there will most certainly be a much higher interest rate offered as well as other administrative fees that could be added to the mortgage loan amount.   These other mortgage lenders can be accessed through the mortgage broker community.

 

Who does mortgage loan insurance protect?   Mortgage loan insurance is required by the mortgage lender because it protects the lender, if, the borrower, for some reason, cannot pay their mortgage.

 

This blog was written by Elizabeth Blair, a Licensed Mortgage Agent with Mortgage Edge in Richmond Hill, Ontario.  Elizabeth services clients in Mississauga and all over the Greater Toronto area.

 

You can contact Elizabeth directly by phone at (905) 510-5785

by email at eblair@mortgageedge.ca 

or you visit her website at:    www.missmortgage.ca

 

 

Elizabeth is licensed with the Financial Services Commission of Ontario and is also a Member of IMBA (the Independent Mortgage Brokers Association of Ontario) www.imba.ca