Give Me Back My Five Bucks

Do you make lump sum payments towards your mortgage?

How many of you make additional lump sum payments towards your mortgage?

Originally, RD and I weren’t going to bother making lump sum payments, but since we had a decent amount of money in our joint account, we revisited that idea a few weeks ago. After some consideration, we decided that once a year (every January) we’d take a portion of our savings to make a lump sum payment towards the principal amount of our mortgage. This year (after accounting for a decent buffer and renovations we want to do in 2018), we decided to put down $3,500 towards our mortgage.

Except that we couldn’t. Or rather, TD Canada Trust is making it very difficult.

Related: Why I don’t want to burn our mortgage

I went online and clicked on the  “Make a Prepayment” button on the sidebar. There, I learned that if we put down $3,500 towards the principal balance of our mortgage, our amortization would be reduced by 13 weeks, and we’d save over $2,000 in interest. Amazing.

But when I went to finalize the payment, I got an error message: “No payment account exists. Please select a valid payment account.”

Must be a mistake! After all, they’re taking my mortgage payments out of my Tangerine account (not to mention my mutual fund contributions), so why wouldn’t they be able to take and additional lump sum payment? I called customer service who confirmed that unless I have a chequing or savings account with TD, I’m unable to make lump sum payments towards my mortgage online or over the phone. In fact, my only option is to go to a branch with either a bank draft or cash. WHAT.

Related: How we saved a 6-figure down payment

After I got off the phone, I did some additional researching online, I found out that most major banks in Canada do not allow lump sum payments unless the borrower also has a chequing or savings account with that bank. I mean I get why the banks don’t want to make it easy for you to make extra payments, but it just seems crazy that I can’t move money from an account that has already been verified and authorized to make my normal mortgage contributions. The technology exists.

Anyway, after I told RD what I had learned, part of me wants to just get a Tangerine bank draft ($10) every year out of principle, because it doesn’t seem right that we have to open up a new bank product that we don’t actually need.

Has anyone else come across issues like this before?
Do you make additional lump sum payments towards your mortgage?

Author: Krystal Yee

I’m a personal finance blogger and marketing professional based in Vancouver. I’m a former Toronto Star (Moneyville) columnist, author of The Beginner’s Guide to Saving and Investing, and co-founder of the Canadian Personal Finance Conference. When I’m not working, you can usually find me running, climbing, playing field hockey, or plotting my next adventure.


Comments

  1. TJ says:

    I had the same situation with my TD mortgage. I went into my local TD branch with my cheque book from my regular account (which is with a different banking institution) and wrote a cheque to myself at the counter with the teller. While certainly not as convenient as an online transfer, it wasn’t too much of a pain since I live in a major city within 5 min of a branch.

    • Krystal Yee says:

      Oh so we can make payments with personal cheques? The person I spoke with on the phone said it had to be a bank draft… if I can just write a cheque that makes a huge difference.

  2. R says:

    Yes! My husband and I make make a huge effort to put every extra dollar towards lump sum payments for our home. It makes a huge difference.

    In our previous home we paid off $600,000 of our mortgage in 5 years. We just moved and started with a giant $950,000 mortgage (which sounds/feels huge but it’s actually small relative to the purchase price of the house). Within 6 months we reduced our mortgage down to $850,000 with lump sum payments (and took off 5 years from the amortization period). We make lots of small sacrifices that add up – packing lunches for work, being a one car household etc.

    • Krystal Yee says:

      Whoa, that’s amazing you were able to pay off a $600k mortgage in 5 years! Looks like you guys won’t have any problem with your current one either! :)

  3. AH says:

    Our bank allows us to put down up to 10% lump sum each year, which we do annually. In addition we increase our bi-weekly payments by 10% each year (also the maximum). We do have our chequing acct. with the same institution (was not aware of the hurdle otherwise).

    We want to get rid of the mtg asap!

  4. Jeremy says:

    We’ve always used Tangerine for our mortgage and make frequent extra payments. Super easy to set up online, pulls from the same chequing account as our regular payments at another financial institution. Your story makes me feel better about taking a small hit on the rates when we did our renewal!

  5. Robyn says:

    I’m surprised that you’ve chosen a “traditional” mortgage. My husband and I have a Manulife One mortgage and it works like a line of credit. We anticipate we will have our mortgage paid off in approx 15 years, but it may be even less based on how our income may change over the years and if we at any point come into money from an inheritance or something.

    • Krystal Yee says:

      The Manulife One mortgage is interesting product for sure, and congrats to you and your husband for utilizing it so effectively!! I’ve definitely considered it, but don’t think it’s the right product for us. We currently keep most of our finances separate (and will continue to do so even after we’re married). Also, right now we have a 20/20 mortgage so we’re able to put down as much money as we want towards our mortgage at a lower interest rate than what Manulife One would offer. We’ll likely never be able to max out that 20/20 option so having the ability to do so isn’t really a benefit. But having said that, we’re on track to be mortgage-free in 18 years – probably be closer to 13-15 years once we factor in our annual lump sum payments.

  6. RT says:

    I had a Bank of Montreal mortgage and the last few years I just went into the nearest branch and made an annual lump sum payment by personal cheque. I had no accounts with them.

  7. Rai says:

    I work in banking, within the Big 5, and until recently managed primarily mortgages. The fact is that the technology might exist but Canadian banks are not cooperative for the movement of money.

    Part of it has to do with the the absurd idea of “business” days, which keeps banks officially still running on a Monday to Friday schedule, despite 24 hour access online and branches being open on weekends.

    There are many internal computer processes that run at specific intervals (normally midnight, 3am, 6am, etc) and these can’t easily be adjusted… So if you enter your prepayment at 4pm, your bank actually might not process it until a day (or two) later at 6am.

    Particularly mortgages are almost universally running on old systems that prevent the entry of different institution numbers for certain transactions. While from a non-technical perspective, you’d think it’d be easy to add the field in, from a business perspective, most of these are proprietary systems that cost millions to update. Your mortgage payments are actually requested 3 days in advance from your bank account, not the same day, and some information can take up to 4 weeks to be updated.

    Is that a good excuse? Not really! But it’s the reality. My previous institution was quoted over 20 million to bring their old DOS investment system into the 21st century… As my mentor at the time explained, no CEO/CFO/COO wants that to be their legacy, to show up as their expense, when the net result is typically the same.

    In your scenario, the quantifiable value to clients is actually minimal… Over 60% of Canadians never make a prepayment on their mortgage. Those prepayments that do get made represent less than 5% of the mortgage balances. While it’s true that most people keep their mortgage institution and primary banking institution separate, it’s also common for people to hold secondary bank accounts at other institutions… and I would wager there is an overlap on where the accounts are.

    There will be a shift over the next 10 years in the accessibility of these systems, as more and more people are banking online… but it’s also true that from a mentality standpoint, people are still more likely to visit their branch in person to make larger transactions, like a mortgage lump sum. As mentioned in previous comments, you should be able to take a personal check in and make the payment with ease… the payment might get post-dated by up to a week however, to ensure that the cheque clears.

    Banking is such a weird twist of intermingled computer systems. It’s sometimes easier to program from scratch, rather then fixing old programs… but just consider the Phoenix debacle. Banks need to be 1000% certain that they’ve improved a system before implementing it… and if it’s a new system, then they have to worry about data transfer.

    I told a client once that I couldn’t get records (in this case a specific cheque that was written) past 7 years. He figured that because it’s all electronic, the information has to be sitting on a hard drive somewhere… Not true. And while I fully support the digitization efforts, the truth is we’re likely to see huge data loss over the next decade. Hard records have some distinct advantages, such as pulling information from a mortgage 3 refinances ago… A true position I was in when investigating a property title charge for a client years ago.

    So, this was really long winded and I’m sorry… but maybe it helps someone understand that when a bank rep says that something can’t be done a certain way… it’s often not their fault but rather old old systems to consider. And as long as they get the job done, even if it’s not the fastest or most efficient, it’s usually good enough. All the banks are updating their technology, but the decisions are based on predictions and presumptions on what will be of best value to their clients in 2 years, or 5 years, or 10 years. For example, about 5 years ago, while many banks started to implement mobile cheque deposit, one bank suggested that cheques wouldn’t be used past 2020 and instead focused other money-movement options. That bank is now due to release mobile deposits, a lot later than other banks, because cheques have not gone away despite what their predictions were.

    I heard once say that if you really hate a company for prioritizing profits over customer service,you should invest in that company instead of being their customer.

  8. EmmBee says:

    Interesting how they differ. I have the same issue when I go to make an online prepayment on my Scotiabank mortgage (my regular bank is BMO), but they have a call in option where over the phone I can authorize Scotiabank to remove $XX, XXX from my bank that they normally take payments from. Having to waltz around with either cash or bank draft seems like a terrible option.

    • VA says:

      Good to know! My mortgage is with Scotiabank, and after reading this post I was afraid I’d go through the same issues, especially because I’ve found Scotia’s customer service to be sub par.

      • EmmBee says:

        Ha! I’m glad I’m not the only one to find their customer service “subpar” (downright dismal at times, in my opinion), but that is one thing that I can’t really complain about. Now, it takes about 3 business days, but IMO that’s ok.

  9. Anonymous says:

    Got a renewal through Simplii (formerly PC Financial, wouldn’t recommend them for mortgage, insisted on 35 year mortgage when it was allowed, we wanted 25, we had to change it, we wanted $50,000 down payment, more than the 20% down payment, they insisted on $38,0000, plus when it was time for renewal, the person we were dealing with, no loner worked there, after we submitted the paperwork, the paperwork was nowhere to be found). The renewal, we put $20,000 extra, looks like we’ll be done in 14.75 years instead. But the way we are going, it looks more like 12 years. Sooner we pay it off, sooner we can start saving for trips or upgrading the garage or whatever we’d like done for the house, give us time to think and discuss what improvements we’d like. We do have different opinions, but worth the wait and discuss.

  10. Reba says:

    The technology exists, yes, but it’s not a service they choose to provide – they aren’t actually making it difficult, they’ve given you options. It’s likely not a widely used transaction (you said yourself you may do it once a year) so it’s not really a big deal or likely a widely used service they want to invest further in.

    Big banks offer us HUGE loans at pretty small interest rates, so we got it pretty good.

    • Caro says:

      Big banks offer interest rates in line with the global economy, not because they’re generous. They’re still making ridiculous profits off us, and they have been during both high interest rate and low interest rate periods.

  11. I LOVE making a lump sum payment to our mortgage principle. It’s such a great feeling to get rid of a big amount of debt in seconds!

    I’ve heard that many loan companies make it difficult for the borrowers to pay off the mortgage early. Some even impose a penalty. That just sounds terrible!

    • EmmBee says:

      This is something that I would love to talk about. I recently paid fees to discharge my mortgage (yay!) but because I was in a fixed rate, closed mortgage, the fee was the larger of the two a) 3 months interest, or b) the interest rate differential. Now, since the interest rates have gone up a bunch since I signed a few years ago, I was dinged a significant amount based on the IRD. Now, I understand that when interest rates are going down, banks use this to discourage people from paying off their high interest mortgage and signing somewhere else at a lower rate… but when interest rates are going up, they should be paying me to get rid of a low interest mortgage!!

  12. Jay says:

    RBC made it pretty easy… my mortgage was paid via pcf but if I wanted to adjust the prepayments or make a lump sum payment I just emailed the agent who set it up and she would take it from the same account.

    I don’t know if they will still do this though.

    My friend has an RBC account so he could do it from the online interface.

  13. Chris says:

    Hi Krystal – I’ve almost written a few times to ask this question: given how low interest rates are right now, have you considered using the money you’d pay in your lump sum, or even the extra monthly principal you’re paying, and invest that money instead? You’re more likely to get better returns on that money than by pre-paying your mortgage. When you pre-pay you have a guaranteed rate of return on that money, but that’s it. It’s a short term play and ignored the long term benefits of investing. Any pre-payments on your mortgage are illiquid and very difficult to take out again. Yes, it doesn’t have the same feeling as paying down a debt, but you’ll always have a monthly mortgage payment. Consider using that “borrowed” money to do more.

    • Krystal Yee says:

      Hi Chris! Thanks for your comment. I know that we’ll gain more than 2.54% by investing our money instead of putting it towards our mortgage, but I think we’ve got a good balance between making sure we are mortgage-free before we take early retirement (in the next 15 years), and continuing to invest for the future. We are paying 12% extra on top of our mortgage payments, and are doing small lump sum payments. Those extra payments aren’t something we are specifically saving up for, just using whatever money is left over in our shared account at the end of the year.

      We don’t want to “burn our mortgage” but at the same time, as someone who has struggled with debt before, I feel a lot better about my finances if I’m actively doing *something* to pay down debt faster than the minimum – even if it’s debt at a low interest rate, and even if I could possibly be further ahead financially if I invested that money instead. Does that make sense?

  14. AJ says:

    I have my mortgage and accounts with the same credit union (a nameless big five bank treated me like I was unimportant, and so I moved my then pitful investments and accounts over to a place that treated me like an adult, even if I was poor). ANYWAY, I can make a lump sum payment of up to 20% of the original principle once a year, which I do so near my birthday. I consider it a birthday present to myself. I could possibly “get” more from investing that 3 – 6K each year, but it FEELS better to me to pay down the mortgage (and I already contribute to RRSPs, TFSAs and a pension plan).

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