TD Matches RBC’s Amortization Surcharge

It’s getting more expensive to lower your mortgage payments.

TD became the second major bank today to announce higher rates on amortizations over 25 years. RBC started this trend a few weeks ago.

“Effective Dec. 1, 2016, new fixed rate mortgages that have an amortization of greater than 25 years will have an additional 10 bps added to their overall rate,” said TD spokesperson Cheryl Ficker. In addition, “All new mortgages on rental properties will have 25 bps added to their overall rate.”

“We regularly review our rates and adjust them based on a number of factors, including the cost that TD pays to fund mortgages, and the competitive landscape. Increasing our rates is not a decision we take lightly…”

These surcharges apply to all TD mortgages, whether you get one from a branch, a broker or a TD mortgage specialist.

Don’t be surprised to see other big lenders add similar surcharges before year-end. Doing so gives banks an opportunity to capture more “yield” (industry-speak for mortgage revenue) and offsets recent regulatory costs.

Most mortgage finance companies (bank challengers) have already implemented long-amortization and rental property surcharges. That’s because, effective today, the government has prohibited lenders from default insuring these loans. This, in turn, makes it hard to securitize these mortgages and forces MFCs to negotiate more costly purchase agreements from—guess who—the major banks.

Sidebar: If you choose a 30-year amortization (instead of a 25-year) at a lender that upcharges 10 bps, you’ll pay about $680 more interest over five years, for every $100,000 of mortgage. About 70% of that extra interest is due to this new rate surcharge, with the rest due to the fact you’re paying off the mortgage slower.