Last weekend the government announced a change to current mortgage regulations which now require federal financial institutions to revise the mortgage penalty disclosures they provide to consumers. These changes were first promised over two years ago by the Finance Department in an effort to bring clarity to the calculation of pre-payment penalties and to ensure consumers were receiving sufficient information on mortgage products. Institutions have until November 5th, 2012 to comply with the changes; compliance will be closely monitored by the Financial Consumer Agency of Canada (FCAC).
FCAC Demands an Increase in Transparency for Mortgage Holders
The FCAC has indicated that there has been a significant increase in the number of complaints they have received regarding mortgage penalties, especially when it comes to the calculation of the interest rate differential (IRD). It seems as though mortgage specialists aren’t doing a good enough job explaining mortgage prepayment penalties or penalties incurred when breaking a mortgage contract to their customers.
Going forward mortgage specialists will need to ensure that they identify and discuss the differences between open and closed mortgage features, fixed and variable rates as well as the cost/benefit of a short vs. long term mortgage.
New Regulations Require Annual Updates – Good News for Mortgage Holders
Every year lenders are now required to provide information to borrowers regarding ways to pay off their mortgage faster, an explanation on how the lender calculates the penalty, a description of the factors that might affect the penalty charges over time, fees associated with the payout of the mortgage, how those fees are calculated, a toll free number to reach a knowledgeable staff member and finally how to access the lender’s financial calculator in order for the borrower to estimate their payment charge. If the penalty formula is complex, the FCAC requires that a simpler way to estimate penalties is provided.
Tailored Information will Help you Manage your Mortgage
Along with this generic information, the lender will need to provide personal information specific to the borrower about their mortgage. The tailored information needs to consist of the dollar amount of allowable pre-payments, the remaining balance, the interest rate with any applicable discounts, the borrower’s remaining term, how the lender determines the comparison rate to calculate the IRD and where the borrower can find comparison rate information.
These changes will help all mortgage holders understand the “ins and the outs” of their home loan, and how to save money by using these features to their advantage.
Other News this Week
CMHC released their seasonally adjusted annual rate of housing starts for February which was at 201,100 units, a 1.5 per cent from January. Quebec and British Columbia had both experienced multiple housing starts which contributed to this upward movement; these were offset by decreases in Ontario and Atlantic Canada.
Stats Can reported that prices of new homes in Canada increased by 0.1 per cent in January from December 2011. Major movers were the Atlantic Region which dropped 0.2 per cent, whereas the Prairie Regions and BC both increased by 0.2 per cent. Interestingly enough, since March 2011 Canada has been experiencing month over month growth in the price of new homes and we have not seen a decrease since July 2010.
RateSupermarket.ca Week in Review
BMO is back in full force with their announcement of offering 2.99 per cent on their 5 year fixed mortgage product and TD has responded by bringing back their 2.99 per cent 4 year fixed mortgage. However, in taking a look at our best mortgage rates page the changes we’ve seen this week include some discounts in the mid-term rates and increases in the long term rates.
No changes this week yet (visitor statistics run on a Wednesday-Wednesday schedule), therefore the 5 year closed variable rate remains the most popular searched mortgage (46.3 per cent of all RateSupermarket.ca visitors). This is followed by the 5 year closed fixed rates (39.7 per cent) and 1 year closed fixed rate (4.1 per cent). It will be interesting to see if these numbers change over the next week given the ongoing rate battle of the banks.