By Jill Kruse
Former stock broker and experienced military spouse Lucie Mann took on the Canadian banking industry and renegotiated changes to the mortgage interest rate penalty policy that will ultimately save military families thousands of dollars and a lot of stress.
The new policy will help military personnel who are being posted out of Canada (OUTCAN). Mann says prior to her campaign for change, mortgage holders could be penalized exorbitant fees in mortgage interest for breaking a mortgage contract before its term. The new policy will limit the penalty to three months interest or $3,000 (or $5,000 in some cases), whichever is higher.
“Once the banking industry understood the special situation’ of OUTCAN postings I believed it would readily agree to modify its policies with regards to the IRD (Interest Rate Differential) penalty,” says Mann. “Should they be posted OUTCAN and have an outstanding mortgage, major Canadian banks (and a few small ones) will now agree to charge only a three month interest penalty or an amount that’s currently being reimbursed under our ‘Core’ funding envelope. In a few cases, the banks will actually agree to this regardless of what is written in the original mortgage contract.”
The IRD is calculated as the difference between the rate of your mortgage and the prevailing mortgage rate at the time you terminate the contract, multiplied by the number of months remaining on the contract. So when interest rates are lower than when you obtained the mortgage, there’s a good chance the IRD will be higher than three months of interest. And the longer the time remaining on your contract, the higher the IRD penalty.
After numerous moves, (24 in 31 years of service) to almost every Canadian province as well as Hawaii, Naples in Italy, Central America, Egypt, etc., Mann has considerable experience maneuvering the challenges of a new posting. Anticipating the nomad lifestyle of living military, Mann decided to abandon her career as a stock broker when she married Colonel Russell B. Mann. They now live in the Gatineau Hills in Quebec and she works from home as a translator for various national and international clients.
Information regarding mortgage clauses is not readily available says Mann, especially to military members going through the stress of an OUTCAN move. Over and over again she became aware of members who faced dire consequences as a result of interest rate penalties.
“Knowing that military families would once more be brought to the brink of bankruptcy by IRD penalties amounting to thousands of dollars – in the case of one military member had a potential IRD of $30,000 to $35,000 – or be exposed to a very high level of stress when it is too late to back out of an OUTCAN posting, changes had to be made.”
Mann admits her work experience as a stockbroker did help her understand the banking industry in general and where they came from with respect to the IRD clause and its application in the current economic context. However, she did get some additional help from some heavyweights in the military community.
“I first contacted the President and CEO of my own bank (TD Canada Trust) and explained to him, in a letter, the unintended consequences of the application of the IRD clause on military families posted OUTCAN,” says Mann. “Registered copies of this letter were sent to the CMP as well as to the Minister of National Defence, Gen. (ret’d) Rick Hillier (who was at the time a spokesperson for TD), and to Mrs. Leslie Natynczyk, a tireless advocate for military families. One of the bank’s senior VP contacted me within days so I could provide further details as to how things work for us when we move OUTCAN – i.e., what is reimbursed under our Core funding envelope when we terminate a mortgage contract before the expiry of its term. Within 2 weeks, TD had agreed to limit the IRD penalty to 3-month interest, regardless of what is in the original mortgage contract.”
She then approached other major Canadian banks (BMO, Canadian Western Bank, CIBC, Groupe Desjardins, FirstLine Mortgages, National Bank, RBC Financial and President’s Choice Financial, – Scotiabank already had a limitation on the IRD penalty for members posted OUTCAN) with a similar letter or email to their respective President and CEO. Within a year, they had all agreed to limit the IRD to 3-month interest or $3,000 (in some cases $5,000).
But Mann is quick to explain that she was never alone in this campaign.
“From day one I could count on the help and collaboration of Mrs. Leslie Natynczyk, who introduced me to Mrs. Nancy Hughes-Anthony, former president of the Canadian Banking Association, and to Mr. Anthony Polci, VP Government Relations. We met with them, and with Captain(N) Lynn Bisson, DGCB, who joined us for a very productive meeting during which we explained the ‘special situation’ of OUTCAN. Within a few weeks, the banks that had not already agreed to limit the IRD penalty were writing back or calling to confirm they would.”
Prior to this campaign, only Concentra Financial, ING, MCAP Mortgage and Scotiabank would insert, at the member’s request, a special ‘military clause’ in the mortgage contract stating that should he/she be posted OUTCAN, their mortgage penalty would be limited to a pre-determined amount stated in the contract.
The new policy will only apply to military families posted out-of-country. There are special policies in place with the following banks: BMO, Canadian Western Bank, CIBC, Groupe Desjardins, FirstLine Mortgages, National Bank, RBC Financial, TD Bank and President’s Choice Financial. As for Concentra Financial, ING, MCAP and Scotiabank, they will insert a special military clause if requested to do so by the member at the time he/she obtains a mortgage with them.
All banking personnel should now be aware of the new rules; however, Mann says there is a duty of education on our part and on that of the banks.
“We cannot expect every single bank employee to read every single policy memo issued, so it is not unusual for a member to have his/her bank say that they do not have such a policy in place while they in fact have one,” says Mann. “A member dealing with one of the banks cited above should insist in the event he/she is told there is no such policy in place that the mortgage specialist communicate with the bank’s senior mortgage director/VP to obtain confirmation of the ‘special military OUTCAN’ policy with regards to IRD penalties. If they cannot get satisfaction, they should communicate with the office of the DGCB who has a copy of all the letters and emails issued by the various banks.”
This experience and other issues with regard to postings abroad has motivated Mann to persue more opportunities for change. Recently, Mann and her husband ran into problems when they were posted from Canada to Italy and when they came back to Canada last fall. The latest involved a US bank issuing cheques in reimbursement of damages that occurred during their international move.
“The contractor was Canadian but the agent taking care of the insurance part was actually American: they issued two cheques that were not legal tender in Canada, i.e., cheques that were not properly encoded, so they were rejected by the bank,” she explains. “We are currently addressing this issue with the national director of SIRVA in Canada so that, in the future, only cheques that are legal tender in Canada are issued, regardless of where the insurance agent is located.”
She is also involved with finding doctors who might be interested in joining her local medical clinic in Cantley, Quebec . “As you know, we often have a hard time accessing a family doctor when we are posted because we are always at the bottom of the waiting list,” says Mann. “Russell and I believe the solution resides in involving ourselves within our respective community instead of just finding a ‘military’ solution to this problem.”
For those thinking about buying a home or re-negotiating their mortgage, Mann offers some advice:
“READ THE CONTRACT BEFORE SIGNING! And make sure you understand every single clause in there,” says Mann. “Your banker is not related to God and he/she is there to answer as many questions as you may have, and as often as you need, before and after signing the contract. It is your money: Protect it and protect your family against potentially huge penalties.
“Know what portability and IRD clauses mean, as well as all the other clauses that could affect your future in a very positive or very negative way. You have the right to be informed and it is ultimatelyyour responsibility to ensure the financial safety of your family. And keep in mind that it is not always best to obtain the lowest mortgage rate on the market.
“For example: Bob lives in province ‘A’ and has a five-year portable mortgage, which, in simple terms, means he can ‘take the mortgage with him’ when he is posted elsewhere and apply it to his new home there. Two years later, Bob is posted to province ‘B’, but his bank does not have a Canada-wide charter, i.e., it cannot operate branches in all Canadian provinces and territories. Even though his mortgage is portable, Bob cannot take his mortgage with him and he will have to break his contact. At what cost? What will his penalty be? He might not be protected under the new IRD agreements because he is not going OUTCAN – he is just posted to another Canadian province where his bank does not operate.”
She is also quick to add that she negotiated a special clause but only for military members posted OUTCAN because you cannot export a mortgage out of Canada . Major Canadian banks have a Canada-wide charter and will let you export your mortgage to another province, IF they have a charter to operate in that province, and IF there is already a portability clause in your contract.
“It’s important to talk to your banker, talk to your family, talk to your friends,” concludes Mann. “The more informed you are, the less likely you are to be confronted with nasty surprises down the road.”