Relocaton/Mortgage Interest

The employee grieved that management refused to reimburse the interest rate differential upon the sale of his home and that it caused him financial hardship. The employee requested to be reimbursed for the interest rate differential.

In June 1996, the grievor renewed his mortgage at the rate of 9.25% interest for a five year term.

In May 1997, the grievor accepted an offer of deployment for a position in Edmunston and, in his letter of offer, the Department stipulated that: "the Department is prepared to pay you actual and reasonable relocation expenses incurred in accordance with the Relocation Directive."

In June 1997, the grievor informed the Department that his mortgage contract contained a "penalty" clause which required him to pay the greater of the following amounts when and if his mortgage was paid out before the agreed upon term: a) an amount equal to six months interest; or b) an amount calculated in accordance with and based on the difference between the current rate of interest for mortgages having an equal term and the rate at which the interest is then payable on the mortgage.

In September 1997, a mortgage statement was issued by the lender requiring the grievor to pay $4,278.64 for having paid-out the mortgage before the maturity date. The mortgage statement refers to this charge as being a "Bonus of Interest" in English, and to a "Pénalité de remboursement anticipé" in French. The amount was calculated in accordance with and based on the difference between the current rate of interest for mortgages having an equal term and the rate at which the interest was then payable on the mortgage.

In September 1997, the Department refused to reimburse the said "penalty" since it was of the opinion that the Relocation Directive did not create an entitlement to be reimbursed for that type of payment. In December 1997, the grievor filed this grievance and requested to be reimbursed the interest rate differential.

The standard mortgage contract usually requires that a lump sum payment be made to the lender by clients if and when paying off their mortgage before the agreed upon term. The lump sum payment represents an amount equal to the greater of either:

• a "mortgage repayment penalty" which is reimbursable as per clause 3.5.1 (d) of the Relocation Directive; or
• a "mortgage interest repayment charge" which is not reimbursable as per clause 3.5.2 of the Relocation Directive since it would have been payable by the employee whether or not the relocation had taken place; only it would have been payable in regular monthly payments instead of lump sum.

In the event that current interest rates are higher than the rate at which interest is payable on the mortgage, the banks will charge the "mortgage repayment penalty".

However, when current interest rates are low, the banks will opt for the "mortgage interest repayment charge" which is based on the difference between the current rate of interest for mortgages having an equal term and the rate at which the interest is then payable on the mortgage.

Because the grievor did not purchase a new house subsequent to his relocation, the Bargaining Agent representative maintained that the grievor was not relocated in the most efficient fashion, at the most reasonable cost to the public yet having a minimum detrimental effect on himself and his family as provided for by the Relocation Directive.

The Bargaining Agent representative believed that the grievor suffered major detrimental effects because he relocated while current interest rates were lower than the rate at which interest was then payable on his mortgage, and because he did not take advantage of these prevailing competitive interest rates by purchasing a new home.

If the grievor had been relocated under the same circumstances, but at a period of time when the prevailing interest rates were higher than the interest then payable on his mortgage, he would have been charged a "mortgage repayment penalty" which is fully reimbursable as per clause 3.5.1 (d) of the Relocation Directive.

The Departmental representative maintained that the grievor was responsible for a mortgage that contained a penalty clause for paying off the mortgage before its maturing date.

In September 1997, the Bank issued a mortgage statement to the grievor requiring him to pay the sum of $4,278.64 as a "pénalité de remboursement anticipé" – this is referred to as a "mortgage interest payment charge" in the Relocation Directive, and it is not reimbursable.

The amount of $4,278.64 that the grievor had to pay to the Bank was for interests that he would have paid during the remainder of his mortgage. The only difference is that the grievor had to pay the bank in one payment instead of paying the amount in several payments.

The Departmental representative maintained that the grievor could have obtained a loan for the amount of $4,278.64 to pay his mortgage interest repayment charge and they would have paid the interest cost of the loan as provided for in the Relocation Directive, section 3.5.3.

If the grievor had purchased a house following relocation, the cost of his mortgage interest repayment charge would have been offset by lower interest rates. The only hardship represented by this demand is that the payment had to be made in one lump sum, instead of gradually over the period of the mortgage as provided in clause 3.5.2 of the Relocation Directive. Furthermore, the Department maintained that by not purchasing another house, the change in the grievor's financial condition and living arrangements were of his own choosing.

If the employer were to pay the grievor's mortgage interest repayment charge, the effect would be for the government to assist the grievor in paying off all mortgage responsibilities, which would represent a personal gain to the grievor and would be in violation of the intent of the Relocation Directive.

The Executive Committee considered the Government Travel Committee report. The Committee agreed to grant the grievor reimbursement for an amount equal to a first mortgage repayment penalty not exceeding six months' mortgage interest as provided for in article 3.5.1(d) of the Relocation Directive. As this approximates more closely the type of penalty incurred under the Relocation Directive.

The grievance was upheld to the extent that the above satisfies the corrective action sought.