TD will be launching a new mortgage program this week that will be sold to their clients as being comfortable, supportive and really good for them, a lot like that over stuff green leather chair we’re all familiar with. But there’s a bit of a nasty surprise waiting for mortgage customers who will decide to take a seat at TD; an insidious little prick that could result in a hemorrhaging of cash.
With your standard mortgage, when your term is up, you may take your mortgage to another lender with a more competitive rate and your new lender will typically pay for the legal fees incurred. As of October 18, 2010, this will no longer be a privilege offered to new TD mortgage clients.
TD has announced that they will now be registering their mortgages as “collateral charge”, meaning the terms of the mortgage can be changed at anytime, without having to re-register it on title. What this really means is that if you want to tap into the equity in your home, you will visit your TD rep, they will put you through the paces of approval for the increase of the mortgage, they will assess your property for it’s current value and if approved, you will either have to take a blended rate on the new mortgage amount or pay a penalty to get a new rate. So no real change in the “ease” factor of refinancing your mortgage, but registering the loan in this manner will save you about $1000 in legal fees and a half hour visit with your solicitor.
How much will this little perk cost you? About a $1000 in legal fees and potentially thousands of dollars in interest. What???
You see, if you REFINANCE your TD mortgage, their new method of registration will save you the legal fees usually incurred by increasing your mortgage. The key word, however, being IF. Many people will never choose to refinance their mortgage, so some TD customers may never actually see the benefit of their collateral charge mortgage.
However everybody RENEWS their mortgage and it’s usually the point at which customers look around for a better deal, sometimes with another lender. This process is referred to as a “switch” and other lenders usually pick up the cost of the legal fees on switch mortgages, making it as easy and attractive as possible for the customer to make the change. Think of a switch as “transferring” the mortgage from one lender to another; as long as no major changes are made to the mortgage like adding a name or changing the mortgage amount, the legal work is pretty simple and not very costly to the new lender.
However, TD’s “collateral charge” mortgages won’t be able to be “transferred” because they will be like oranges to everybody else’s apples. A TD mortgage would now have to be discharged in order for you to change to a new lender at renewal, so that your new “apple” mortgage can be registered in it’s place. This is a much bigger legal deal so other lenders will most likely NOT be covering the legal costs for “switch” customers with TD mortgages.
In short, if ever you should refinance, this change will SAVE you about $1000 but if you should want to switch your mortgage at renewal, it will COST you about $1000.
So that was that the annoying, senseless little tack…here’s the internal bleeding….
What will motivate TD to be competitive at renewal when they know it will cost you money to go somewhere else? Prior to this change, after they made you shop around with mortgage brokers and the like, they would probably decide to be competitive and offer you a decent rate. Now, TD will most likely point to the cost involved in making a switch rather than be competitive rate wise and many customers will choose to simply sign their renewal without question. This could be a mistake that will cost TD clients thousands and thousands of dollars in interest payment over the lifetime of the mortgage.
Why are they doing this? Well, they’ll tell you that it’s for your ease and comfort but really it’s for theirs. In a financial market downturn, when not there’s not alot of new mortgages being obtained, TD is trying to ensure they’re clients don’t renew with any one else thereby creating a steady stream of business for TD in the near and distant future. Not with competitive rates and stellar service, mind you, but by a shameful play to lure clients into trading their freedom of choice for a minor, POTENTIAL, convenience.
I recommend taking a seat somewhere else.
Contact one of our licensed mortgage brokers if you have any questions about TD’s new mortgage policies.
Editor’s note: In many cases the cost of legal services for refinances is as low as $400-$500 and some of our lenders now offer “no-fee refinancing” in which they cover the legal and appraisal fees.
To be fair to TD we confirmed a ton of details with our account representative. TD does have a fair bit of spin on this issue ready to go for the countless inquiries they’re getting. They mention one fact that 20 times the number of TD customers refinance with them than transfer a mortgage out to another institution. That’s all well and good, but those that are going to feel the biggest pinch now are the people who feel as though they have to renew with TD. Had TD really wanted to make this process favour their clients more, they simply could have offered no-fee refinances and saved their clients the cost of the appraisal and legal. The bottom line? TD will have way more leverage at renewal time, and as a result, they’ll keep more of their clients and those clients will likely pay substantially more in the future. – Gord