Prepayment penalties are nothing new. If you get a Toronto mortgage (or a mortgage anywhere in Canada for that matter) and you want to pay it off early, you’ll need to pay a certain amount in prepayment penalty fees in order to do it. While these fees are something that every homeowner tries to avoid as they’re generally fairly expensive, there’s one case in Southern Ontario that’s getting a lot of attention.
That is the case of the Mondragon cooperative complex that’s located in Brampton. The complex has a Brampton mortgage on it, but engineering studies were done on it last year that showed extensive renovations and retrofit work needed to be done – and that work would be somewhere in the tune of $2.3 million.
Instead of taking out a second mortgage to afford the work that needed to be done, the Mondragon went to their lender in hopes of breaking their mortgage and finding a credit union that could give them a new mortgage. Their lender is currently the Canada Mortgage and Housing Corp (CMHC); and the Crown corporation is telling the co-op Board that in order to break their current mortgage there will be prepayment fees – and those fees will equal $140,000. Sound fair?
Not surprisingly, the Board doesn’t think so. Nadine Wisdome, president of that Board, says, “We are prepared to pay a reasonable prepayment penalty. We are asking Minister Diane Finley, our Member of Parliament Parm Gill and Brampton Mayor Susan Fennell to help us in our fight for fairness to reduce this bureaucratic roadblock in our pursuit to maintain financial independence and housing security for all of our members.”
CMHC though, doesn’t seem to be listening. They have already asked the Board twice for the prepayment penalties, saying that the mortgage is held under the corporation’s Direct Lending program; and that the interest is the amount of interest the loan would have accumulated over the course of its current five year term. That term has also recently just started.
In addition to the $2.3 million needed for the repair and renovation work, as well as the $140,000 in prepayment penalties that the CMHC wants, the Mondragon Board is also still responsible for the $1.8 million principal that’s still left owing on the mortgage.
What do you think? Is this fair practice, considering that homeowners would also be charged any prepayment penalties? Or do you think that the penalty is simply far too high, and should be lowered?
