# IRP and Early Mortgage Repayment Penalty



## Infanteer (28 Mar 2011)

Question for anyone in the know,

I read on the CF IRP site that:

_DCBA has determined that, CF members need to be reminded that they are responsible to negotiate the terms of their mortgage to coincide with the relocation benefits contained in the CFIRP. Usually the financial institutions will charge the greater of

Mortgage Interest Differential or
3 months interest. 
However, the CF will only reimburse; a maximum of 3 months interest as a core benefit and 3 months interest as a custom benefit._

So if someone must break contract and gets charged with the Mortgage Interest Differential, will the IRP cover the costs that the 3 months interest would have been (with the member covering the remainder) or is the member on the hook for everything for a Mortgage Interest Differential?


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## Pusser (28 Mar 2011)

This issue has a long history (which I won't go into now), but I last I checked, a Mortgage Interest Differential could only be reimbursed in situations where the member is unable to port the mortgage (e.g. posted overseas, posted for less than 1 year, etc).  In other words, situations where the member is unable to buy a house at the new location.  Please note that the operative word is "unable," due to service reasons (e.g. CF will not provide benefits).  This is different from "chooses not to" because it is not financially advantageous to do so.  Selling a house because you are moving to the UK (where we don't pay real estate and legal fees, etc) - YES.  Selling a house because you are moving to Victoria and you can't afford anything - NO.

The key is that you should port your mortgage (i.e. have the bank transfer it to your new house) if at all possible.  That point is also in the IRP guide.  The bank will not normally charge you a penalty or a differential for porting.  

On a final note, when porting a mortgage, if you are borrowing more money than the principal remaining, the bank will likely give you  blended rate.  The fact that this blended rate is higher than their current rate is NOT considered a valid reason for not porting your mortage and you will likely be on the hook for any differential charged.


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## Infanteer (28 Mar 2011)

Pusser said:
			
		

> This issue has a long history (which I won't go into now), but I last I checked, a Mortgage Interest Differential could only be reimbursed in situations where the member is unable to port the mortgage (e.g. posted overseas, posted for less than 1 year, etc).



I'm confused - the policy above seems to say that they won't pay an Interest Differential at all. 

If your contract has a IRD as a mortgage repayment penalty, will the IRP cover the value of 3 months interest on an IRD or will they only put the money out if 3 months interest is being payed (ie: 3 months interest is $3,000 and IRD is $5,000; will IRP pay $3,000 of the IRD leaving member to cover the other $2,000)?

As well, as I read your post, coverage of 3 months interest on breaking a closed mortgage isn't an automatic benefit - it is only granted if there is a good reason to break your mortgage and not port it at your new posting.  Am I understanding this right?


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## Pusser (28 Mar 2011)

To be honest, I don't know anymore.  Policy has flopped around on this so much, I don't know if anyone is really aware anymore.  What I can say is this.  Treasury Board hates the idea of reimbursing anyone for IRD.  The reasoning is that since IRDs usually only apply when interest rates are dropping, the member actually has a chance to benefit when breaking a mortgage as he she will then be able to get a lower interest rate.  The biggest problems arise when members are placed in situations where they are unable to buy a house at the new location (i.e. situations where the CF does not cover real estate and legal fees, such as being posted outside Canada, posted for less than one year, or perhaps posted to a location where your caisse populaire does not operate, preventing you from porting - don't quote me on that one).  There was a move within the compensation and benefits world to cover these situations, which seemed to be successful at one point, but I don't know where that lies at the moment.  Your IRP consultant is your best source for current information.

Having said this, the good news is that because interest rates are rising at the moment, an IRD situation is less likely.  In most cases, breaking a mortgage will involve a simple penalty, which is reimbursable under the regulations.  The going rate for breaking a mortgage is three months' interest and that can all come from core.

Another thing to consider is that one can avoid all of this by porting a mortgage, which is what I recommend as your best option, if possible.  Generally, the blended rate will be better than the current rate and there will be no penalties.  If you talk to your bank and tell them what a good customer you are, they may even give you more of a break (worked for me anyway).


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## Cpl4Life (28 Mar 2011)

Infanteer said:
			
		

> I'm confused - the policy above seems to say that they won't pay an Interest Differential at all.



This is correct. The policy changed within the last year or so. Absolutely no IRD is reimbursed now.  Good on you for doing the reading; many do not and many get screwed by not reading the documents. IRD CAN cost you thousands and thousands and thousands of dollars. Pays to read those IRP books! 

The previous poster has a point, rates are going up so chances are very slim you would incur the IRD anyway.

You asked if IRP covers the costs that the 3 months interest would have been. They do, out of core, plus another 3 months worth from custom.


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## Zoomie (29 May 2011)

Nix said:
			
		

> Absolutely no IRD is reimbursed now.



My IRD is being covered.  Like previously mentioned if you are posted by the CF to a place where you cannot port your mortgage, the plan will cover you.  It just so happens that in my case the IRD is higher than 3 months interest.  So I expect the equivalent funds from Core to cover up to the 3 month interest value, with the subsequent balance to be covered out of custom, up to a maximum of the 3 month value.

Interest rates are lower - hence IRD is being applied to mortgages that are being broken.


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