TD Bank client 'devastated' by $17,000 mortgage penalty

An Edmonton couple say they were shocked when their bank manager told them it would cost $17,000 for them to end their five-year fixed mortgage early.

Shane and Joy Trusz say they were expecting to pay a penalty of three months interest, which would have been less than $4,000.

Under the mortgage contract, TD Canada Trust had the right to calculate the penalty using either three months interestor the Interest Rate Differential(IRD).

The IRD is based on a complicated mathematical formula that includes the principal owing, the months remaining on the mortgages term, and a comparison of the interest rate the client is paying versus the rate the bank would charge for the remainder of the term.

Even after using TDs IRD calculator, Shane Trusz said he couldnt understand the amount TD was going to charge.

We came out with a figure, it was about $7,000, Shane Trusz said. So, how is TD coming up with $17,000? I have no idea.

Trusz said he expected TD Canada Trust, with whom they have banked for almost 20 years, to make an exception in their case, because they are selling their possessions to do humanitarian work.

Family selling home and moving to Haiti to run orphanage

For the past two years Trusz has been a board member of the Haitian Childrens Aid Society(HCAS). Hes made three trips to Haiti to help reconstruct an orphanage for 60 children in Mirebalais, in the centre of the earthquake-damaged country.

This summer, the Truszes decided to sell their home and his business and move to Haiti to help run the orphanage for up to 10 years. Trusz said the family had budgeted to live in Haiti on $24,000 a year.

We have some money set aside for project costs, to buy land, create businesses. Were going to be using our own money to do thatand so when all of a sudden were going to have $17,000 less than we thought we were going to have, we see that in human terms.

The last time I was there I lent a Haitian $2,700 to build his first home with indoor plumbing, Trusz said.He has two girls, so theyre going to live in a house with a toilet and a sink for the first time in his life.

Trusz said the TD branch manager was initially encouraging and asked him to submit a letter of reference from HCAS describing its work and the Truszes role.

The branch managers three-sentence email response came less than a week later, saying TD had declined to reduce the penalty to three months interest and that an appeal submitted by the banks district vice-president was also declined.

I was devastated, Trusz said. Were laying down everything we love about this world,living here in Canada, to go and help people. So, if you cant make an exception for that, what would you make an exception for?

'Banks do what they want,'industry expert says

Most consumers have no idea the size of penalty they will be paying to get out of a fixed mortgage early, says Richard Beaumier, Vice-President of the Political Action Committee of the Quebec Federation of Real Estate Boards.

As a consumer, you will always have a huge penaltyeven if the rates are flat, like we have seensince a few years [back], Beamier said.

In a 2010 report, Beaumier wrote that the methods banks use to calculate the penalties lack controls and uniformity.

Beamier said nothing has changed in the interceding four years.

Our governments do nothing, the banks are doing what they want, said Beaumier, who is seeking the Liberal nomination in a Quebec federal riding.

Beaumier suggested TDs $17,000 penalty is probably an accurate calculation of the IRD, and could even rise the longer they wait.

Beaumier suggests banks are applying a contract thecustomer willingly signed, but said such penalties are often twice as high as the bank needs to cover its actual costs and foregone revenue.

This is not a penalty, he said. This is a penalty, plus a cost reimbursement, plus an overcharge.

Beamier said its in banks financial interests for consumers to end their mortgages early and that he believes mortgage penalties make up a significant part of Canadian banks profits.

He said American banks manage to remain profitable but have much lower, even non-existent mortgage penalties.

In the first six months of 2014, TD Canada Trusts overall profit was over $4 billion.

TD makes new offer after call from Go Public

Trusz said he called CBC Go Public after TD told him he had no more avenues for appeal.

After Go Public contacted TD asking for comment, the bank made the Truszes an offer.

In an email, TD spokeswoman Lynzey MacRae said the Truszes are happy with the offer, but cited privacy reasons for not providing details of the settlement.

MacRae said the IRDis designed to ensure a bank wont suffer when a customer decides to end a mortgage before its maturity date.

She said TD policy is to make exceptions for military personnel, or in some cases for compassionate reasons, which it evaluates on a case by case basis.

Im under no illusions they have to cater to the shareholder, but I think theyre getting more and more short-sighted as they get bigger and bigger. This could have been a great publicity thing for them and meant the world to us.

When contacted by Go Public again, Trusz confirmed he had accepted the bank's offer but would not comment further.