Early Payout Penalties

We interviewed Jay Meakin of Archimedes Mortgage Ltd. to find out more about early payout penalties: When you would suggest this option to your client and how to effectively communicate the benefits of an early payout penalty.

What are early payout penalties?
Should a mortgage contract be broken prior to maturity by the borrower, the contract stipulates that penalties may apply. Usually the higher of interest rate differential (IRD) or 3 months interest cost will be the penalty.

When would you suggest this route?
Only if a borrower can recover the penalty cost within the term of the new mortgage would I suggest breaking a mortgage and paying the penalty.

How do you prepare a client for the possibility of early payout penalties? 
Before a customer decides what type of rate and term, I will ask them how long they plan on staying in the home and what the likelihood of having to sell and move is. 

How would you prepare your client to ask for a payout statement from their lender?
Sometimes I’ll ask the client to sign a consent to disclose form which I can present to the lender on the borrower’s behalf. Depending on the circumstances, it may be easier for the customer to ask lender directly. There is always a risk the lender will try to bring the borrower back in house by renegotiating. Establishing rapport with the customer and providing an appropriate and competitive product based on their needs is usually enough to earn their loyalty.

​Staying in contact with your customers throughout the term of the mortgage is the best way to earn repeat business. 

Example email to client
"Hi (Insert client name),
 
Thank you for your message. 
 
Mortgage rates are at all-time lows as you’ve no doubt seen in the media.  When your mortgage closed in 2017 you chose a variable rate with RMG which was Prime -0.70%. A very sweet discount which is better than any discount off prime right now. RMG prime is at 2.45% Which means your effective rate should be 1.75% !!
 
I’m not aware of any changes since then.
 
If you did lock-in, both you and your partner Please sign and return the attached broker consent form and I’ll check on what is left owing, rate etc… ** Check off the first option box **
 
Since we’re on the topic, do you happen to know anyone else who is looking to buy, refinance or switch to a lower mortgage rate? If so, I’d love to help save them some $$. 
 
Best,"