That’s one of those things that we definitely don’t like – payout penalties from banks.

What happens is that when you crash or break a contract, the bank sees that as a way to capture the money that you were going to pay for the remaining of that term anyway. It’s as if you had that money and you lent it to someone and you’re anticipating getting this money back over the next 16 months at this interest rate and then they collapse it, you now have to reinvest it – so they’re saying well this is my reinvestment cost and they’re going to charge that.

Now if they waited until the end of their term, so they have either a 1-year, 3-year, or 5-year term on their mortgage, at the end of that term they call it a transfer. A transfer and a switch are two different things. When you transfer, there is no cost. The other bank actually wants your business; they’ll pay the legal fees, the appraiser – they’ll do all those things to attract you to another lender because they already know your lender likes you, therefore they want you.

Catch Bill Macklem of Dominion Macklem Mortgages at BilliMac.com every Saturday morning at 10am on the AM650 Radio Real Estate Show in Metro Vancouver with host Tom Lucas and Sheri Brown.