Tag Archives: Calgary lawyers

Avoiding Mortgage Payout Penalties

Date: November 24th, 2020
By: Ron Thibeault

How Mortgage Payment Penalties Work

What we find most surprising when dealing with Sellers is that they rarely know how a mortgage prepayment penalty works. Either it was never explained to them. By either the mortgage broker, their bank, or their lawyer. Or, they never took the time to understand this important factor of mortgage payout penalties, when they first mortgaged their property.

In today’s interest rate environment, our clients are seeing some very severe penalties. This is due to a little-known clause on prepayments. The mortgage penalty is  applied on the basis of the greater, of the payment of 3 months of mortgage interest. Or applied as the interest rate differential – the IRD.

Closed Mortgage

When you elect to have a closed mortgage there are limited prepayment privileges. Which range anywhere from 5% to 25% of the principal of the mortgage on an annual basis. Typically there is also the option to increase your mortgage payment by a maximum amount each year. If you go above these limits you will likely incur a mortgage penalty. We typically see mortgage penalties being incurred either from a sale or a refinancing of the property.

Interest Differential

Understanding 3 month interest is simple enough to do. However, the interest differential is a little more difficult and of greater concern. Essentially, this is the difference in the amount of interest you would be paying for between the balance of the term of your mortgage and the amount of interest you would be paying if the interest rate were equal to the bank’s current posted rate for the balance of that term.

Seems innocent enough, except for the fact that we have seen interest differential penalties in the tens of thousands of dollars. This can and will potentially affect your return on your property. In some cases has resulted in Sellers having to pay money in order to sell their properties.

What Can Be Done About Mortgage Penalties?

What can you do about mortgage penalties? First, understand what the mortgage penalties are for the mortgage product you are contemplating. Second, understand what your purpose of buying a property is. Are you intending to sell the property relatively soon or hold on to it for longer? Match your term and mortgage product to your intentions. Third, engage your banker or mortgage broker in a full and frank discussion of what your needs are and how prepayment costs can be minimized.

Maybe the best advice of all is to understand what your penalty might be BEFORE you decide to sell or refinance your home.

We can help you understand your mortgage payout penalties and whether or not you will have to pay a penalty. Don’t hesitate to get in touch before you sell or refinance your home. For any questions or concerns contact us today by emailing us at [email protected].

Completing A Will

Date: November 5th, 2019
By: Ron Thibeault

An Estate Plan is vital for each person to complete. Recent surveys show that 63% of people don’t have a valid Will and another 15% have Wills that are out of date! That is 78% of people in Alberta with inadequate protection of their most valuable assets.

That number is shocking but reflects the stark reality of the situation – that most of us haven’t properly set out the most basic of documents to protect ourselves and our loved ones from potential disaster.

Understanding the ins and outs of Estate Planning will set you on the proper path. The following information gives you the basic information you will need to make this important decision.

Exactly What Is A Will?

A Will is a written document that details how you want your property distributed after your death. In Alberta a Will is valid only when it is in writing. There are some factors that can affect whether your Will is valid – a couple of the most important factors are that:

  • Your Will has to properly signed;
  • You must be mentally competent;
  • You must be at least eighteen years of age and
  • Your Will must be properly witnessed unless it is in your own handwriting.

There are other circumstances where a Will can be valid, but for vast majority of situations the above rules hold true.

In addition to distributing your property you normally name your “Personal Representatives” in your Will. A Personal Representative is also known as an Executor, Administrator or Trustee.

Your Personal Representative is the person or trust company legally appointed to represent your estate after your death. The duties of a Personal Representatives include carrying out the wishes that you have stated in your Will, gathering your assets, paying your debts, filing your final tax returns and distributing your property according to your wishes as outlined in your Will.

Why Do I Need To Make A Will?

A Will ensures that your wishes are carried out with a minimum of expense and delay after your death. Just some of the advantages of having a properly draft will are:

  • Saving time and expense for your family and beneficiaries.
  • Avoiding the issues of dying intestate (without a Will)
  • Choosing what happens with your estate
  • Choosing who will be the guardian of your children
  • Setting up trusts for beneficiaries of your Will who may need time before being able to manage your gift
  • Benefiting your favourite charities if you choose
  • Taking advantage of tax planning strategies to minimize the tax payable by your estate after your death

What Happens If I Don't Have A Will?

If you do not have a Will, you have no idea who will be the Administrator of your estate and that the person who has the priority to act as the Administrator to your estate may not be the person you would have chosen had you made a Will.

Also, between the time of your death and the time when someone is appointed can be significant and during that time no one has the authority to deal with your assets.

This could leave your spouse and children in need of sorely needed funds that they don’t have access to and create significant hardships for them. In addition, if you and your spouse have passed, the question of who is to guardian to your children is left open and they may not end up with who you would have chosen.

Contacting us to build and develop a proper Will avoids these potential issues.

What About 'Joint Tenancy'? Isn't It Good Enough?

If you own property in joint tenancy and you die, the other person normally becomes the property owner. Jointly held property does not form part of the estate.

However, if all other joint tenants predecease you then the property will form part of your estate so it is still necessary for you to have a Will.

Joint ownership of property may be a beneficial aspect of estate planning, especially between spouses, but it can also expose you to certain risks.  If the other joint owner of that property is not your spouse and they suffer a marital breakdown, their spouse may be able to make a claim against that jointly owned property.

Similarly, if the other joint owner gets into debt, their creditors may be able to make a claim against any and all jointly owned property. It is worth noting that while a Will may be changed as often as you wish, once a property has been put into joint names, it requires the consent of ALL owners to sell the property or change the title.

Moreover, there may be tax implications in changing a title from joint ownership to sole ownership. It is, therefore, VERY STRONGLY recommended that you seek legal advice before putting any real property into joint names, especially with someone other than your spouse.

Contact us at LeClair Thibeault to determine whether any of your property should be placed in joint tenancy.

I Have Life Insurance. Do I Still Need A Will?

Life insurance is one of the many kinds of property you may own. It may be an important part of estate planning but does not take the place of a Will.

Life insurance may be an important source of funds to provide for the payment of debts or taxes. But there are issues with regards to naming your minor children as beneficiaries if your intention is to limit their access to your estate until they are old enough to deal with windfalls.

Do I Need To Name A Guardian?

Minor children will need to have an appropriate trustee and guardian if you and your spouse die. If you are an unmarried parent of a young child, this concern is equally important. You can and should select a guardian under the terms of your Will.

Many people struggle with the choice of a guardian – after all, no-one will raise your children the way you would have – but this should not deter you from making a Will. At the very least, having a Will in place will ensure that your children are appropriately provided for financially.