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Saturday, July 23rd, 2016

IRD Penalties on FirstLine Vancouver Home Mortgages

IRD Penalties on FirstLine Vancouver Home Mortgages

The following information may be helpful for individuals holding Vancouver home mortgages through FirstLine.

FirstLine Mortgages is a subsidiary of CIBC which stopped accepting mortgage applications as of July 31, 2012. According to CIBC, parties who currently have mortgages with FirstLine will not be affected by this change. Terms, interest rates and payments will continue for current customers. In addition, these customers will be given the option of renewing their mortgages with FirstLine.

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FirstLine was supposedly shut down due to a change in CIBC’s strategy. CIBC wanted “deeper” relationships with its clients, and the nature of FirstLine did not support such a vision.

So how will rates be set going forward for current customers?

This is relevant for those contemplating whether to refinance with CIBC, or refinance with another lender.

It matters to current customers because interest-rate differential (IRD) charges will be affected by future rates from FirstLine. As you may be aware, those who prematurely terminate a fixed-rate mortgage are sometimes subject to IRD penalties.

Most contracts for Vancouver home mortgages will hit you with an IRD penalty if you make principal payments on your mortgage in excess of what the contract permits, or if you pay back your mortgage earlier than the set maturity date.

3 factors come into play when calculating an IRD penalty. The 1st is the amount of principle you are paying off in advance. The 2nd is the original interest rate on your mortgage, and the 3rd is the rate that the lender can charge today, if re-financing the remainder of your mortgage.

Typically, closed mortgages with fixed-rates exact a prepayment penalty that is the greater of the difference between the latter 2 interest rates, and 3 months interest.

According to CIBC, posted rates will continue to be in line with CIBC’s approach over the prior year, during the time-period when the company was still accepting new applications.

If the future actually plays out in such a fashion, that’s good news for those with Vancouver home mortgages from FirstLine. FirstLine’s rates have been above market rates for over a year now. And due to the nature of the IRD calculation, the comparison rate and the IRD charge are inversely related; so such a situation would leave borrowers with a lower IRD charge.

A spokesperson from CIBC stated that the company would like to retain current mortgage clients who are using FirstLine, so that they can continue developing these pre-existing relationships.

For this reason, it’s quite possible that CIBC will decrease the severity of penalties for FirstLine mortgage holders who choose to refinance with the company.

If you are a current FirstLine client, you can call 1–800–970–0700 for a penalty estimate.  Homeowners with Vancouver home mortgages would also be wise to contact their brokers to compare options for refinancing available from other lenders.

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