Brokers frustrated by high prepayment penalties for clients are calling for more government oversight.

“The federal government needs to step in and set a single formula that all lenders are mandated to follow, thus protecting all consumers,” Blair Goodman of Dominion Lending Centres National wrote on MortgageBrokerNews.ca

Several industry players were quick to agree with Goodman’s suggestion, citing excessive penalties doled to clients by certain lenders.

“The big banks have all reduced their posted rates below five year terms, thus creating a massive IRD day one after signing a five year fixed mortgage,” Peter Pasula of Domionion Lending Centres Coquitlam Mortgage Brokers wrote. “A recent … client with 2.79 fixed rate and 3.5 years remaining on the term was quoted +$50k for a penalty. Low rates like this should not have any IRD penalty.”

The discussion was sparked by an MBN article about the various prepayment penalty calculations used by different lenders.

“There are so many different ways lenders calculate penalties – certain lenders will use the posted rate and not the discounted rate that was offered to the client,” Narish Maharaj of Dominion Lending Centres Mortgage Mentors told MortgageBrokerNews.ca. “Others will subtract the client rate from the T BILL rate and subtract the client’s rate to determine the penalty.”

According to Mararaj, not only are certain lenders doing whatever they can to saddle clients with the largest possible penalty, it can become confusing when dealing with all the various rules.

“Trying to figure out the penalty is frustrating [from lender to lender] and many of them are creating much bigger spreads,” he said.