How the Big Six keep you (and charge you)
Canada’s six big banks dominate residential mortgages, and several standard features of their contracts quietly make it costly to leave once you’re in.
The friendliest-looking rate can sit on top of a contract engineered to keep you. The clearest example is the collateral charge. Some big-bank mortgages are registered as a collateral charge rather than a standard charge, often bundled with a line of credit (products marketed as all-in-one or “step” accounts). It sounds like a convenience, but at renewal it usually means you cannot do a free “switch” to another lender the way a standard charge allows: you have to discharge and re-register the mortgage, which means legal fees, or refinance entirely. The friction is the point: it makes staying easier than leaving.
Then there is the break penalty. The big banks generally calculate the Interest Rate Differential (IRD) using their posted rate (the inflated sticker rate almost nobody pays) minus the discount you originally received. Because the starting number is artificially high, the penalty comes out far larger than a fair, contract-rate calculation would produce, sometimes by thousands of dollars on a mid-term break. Most fair-penalty lenders (many monolines and credit unions) do the math off your actual rate instead. Same event, wildly different bill.
The traps also hide inside the “special” or lowest-advertised rates. To hit a headline number, banks attach restrictions: thinner prepayment privileges, no portability, or a bona fide sale clause that blocks you from breaking mid-term for anything except a genuine sale of the home, so you cannot leave to chase a better rate even if you want to eat the penalty. And renewal is its own quiet cost: the first offer the bank mails you is rarely their best, because they are counting on you signing it without shopping. Loyalty is not rewarded here; it is billed.
None of this is illegal, and it is all disclosed somewhere in the paperwork. But disclosure buried in a contract is not the same as a fair deal, and the whole design leans on the fact that most borrowers never read the mechanics until they try to leave. Before you sign anything, ask three things in writing: is this a standard or collateral charge, exactly how is the break penalty calculated, and are there any restrictions on prepaying, porting, or breaking the mortgage.