Disclosure vs. maximizing profit: Homeowner hit with extra $10K penalty for ending mortgage early

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A Toronto man is warning people to take a close look at the penalties they’ll face for breaking a mortgage before they lock in, after his paperwork didn’t include important information that would have saved him more than $10,000 in fees.

“I was frustrated that a key piece of information hadn’t been disclosed to me,” Nadim Kara says.

“Particularly as that piece of information wasn’t in the mortgage contract so I had done what I thought was my due diligence and you know, I read the papers. I read the contract.”

Mortgage contracts have to disclose all information on penalties for ending a mortgage early and how they will be calculated.

Kara didn’t know it then, but missing from his mortgage contract was information about a little known rule — homeowners with terms longer than five years can only be charged a penalty of three months’ interest if they break their mortgage after the fifth year, not the much higher interest rate differential fee.

In Kara’s case, if he had waited just 60 more days, his penalty would have shrunk from $13,000 to $3,000.

Nadim Kara and Tori Ingram

Nadim Kara and Tori Ingram live in Toronto with their daughter. (Craig Chivers/CBC)

While Kara’s issue has now been resolved, he’s frustrated no one is taking responsibility and worries other Canadians may be paying higher penalties than they should be.

In 2012, Kara and his wife moved from Ottawa to Toronto, renting out their Ottawa house, hoping it would increase in value over the years.

By February, that hadn’t happened and they were losing money, so Kara started looking into the cost of selling — reviewing his mortgage documents and contacting his mortgage company, First National Financial, to ask about penalties for breaking his mortgage early.

By the time the Ottawa house sold, Kara was less than two months away from the five-year mark on his mortgage — and that big reduction in penalty costs.

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Disclosure vs. maximizing profit: Homeowner hit with extra $10K penalty for ending mortgage early

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