Misunderstanding mortgage prepayment terms

One year after signing for a five-year term mortgage, the client decided to list her property for sale. At the time of closing, she discovered that a substantial penalty was charged by the bank in order to pay out her mortgage. The client had been under the impression that the mortgage prepayment penalty would equal three months' interest. She was prepared to pay that amount but was surprised to find out later that the actual penalty would be based on an Interest Rate Differential, resulting in a much larger penalty amount.

We reviewed the mortgage agreement as well as all the bank's disclosure statements signed by the client. We concluded that the penalty and all relevant information were properly disclosed in the mortgage documents. The mortgage prepayment penalty clause clearly indicated that the higher of three months' interest or the Interest Rate Differential would be charged if the mortgage was paid out before the end of the term. In addition, we found no evidence of any misleading advice or mistake made by the bank. The client had the opportunity to inquire about the penalty either by obtaining an accurate mortgage discharge statement from the bank or by reviewing her mortgage agreement before listing her house for sale. As a result, we did not make any recommendation for compensation

(2009)