Money Matters

Breaking a Mortgage May Not Break the Bank

Military families can take huge financial hits when they break existing mortgages when posted from one province to another.

One financial institution in particular is making changes in favour of the Canadian Armed Forces (CAF) member.

“We recognize that there are circumstances where a client has to move before their mortgage matures due to matters beyond their control, which is why we offer cost-effective and convenient solutions for our clients,” said Andrew Block, spokesperson, RBC.

Military families move from low cost-of-living regions of the country to some of the most expensive cities in Canada during the Annual Posting Season (APS).

Military spouses are put in the position of resigning from their full-time employment to keep the family intact and living together. This leaves families relying solely on one income to pay a mortgage that may more than doubled with the posting.

To financially survive families move into lower cost military housing, or rent accommodations. When this happens, existing mortgages are broken, and penalties in the thousands of dollars may be levied by banks.

An RBC policy change, effective July 1st, 2015, recognizes the unique circumstances faced by Canadian Armed Forces (CAF) members while acknowledging their service to Canada on behalf of all Canadians.

“We understand that for clients in the Armed Forces, while in service of their country, there may be circumstances beyond their control, such as being relocated outside of Canada, or being relocated within Canada, that do not involve purchasing a home in their new location,” said Block. “We already waive prepayment charges for clients who are military personnel posted overseas.  We are extending this waiver of prepayment charges to any member of our Armed Forces who is moving due to a military relocation and does not intend to port their mortgage.”

Every military family presents unique circumstances to banks.

Some families want to sell one home and purchase another. They simply want to move their mortgage with them. In this situation, according to Block, an option for the client to consider is ‘porting,’ or transferring the mortgage from their existing property to a new property thus maintaining the interest rate and terms of the initial mortgage.

Clients have 90 days from the sale of their existing property to port their mortgage, subject to RBC credit and policy guidelines. Block says this is a popular option for many clients, including those in the Canadian Armed Forces, as it can avoid pre-payment charges.

Other major banks are recognizing CAF members and their unique circumstances.

“For customers who are members of the Canadian Military, TD will waive the prepayment compensation associated with paying out and discharging a mortgage, if any, if they have been re-assigned and must sell their Canadian residence,” said Alicia Johnston, spokesperson, TD.

Customers need to ask their banking representative what their policy is on breaking mortgages and mortgage penalties is for CAF members prior to signing on the dotted line. Not all major banks will absorb the penalty, leaving families to take the financial hit.

CIBC and Bank of Montreal were contacted regarding their policies but did not respond.

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Vicki L Morrison

Thanks to her husband's military career Vicki reinvented herself as a writer so she could work from home, while taking care of their three kids. A former MFRC executive director Vicki is a passionate advocate for military families who loves telling their stories.

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