Improving Pre-Payment Penalty Disclosure
For
many Canadians, it can be to their advantage to pay a prepayment penalty and
get out of their mortgage, particularly if they need to refinance to
consolidate debt or want to lock in a lower mortgage rate. For others, it may
not be worth the costs involved. Whether advantageous or not, many homeowners
have found it a frustrating experience to simply determine what their penalty
is, and how it is calculated. That’s why it’s great news that the federal
government just announced measures that will improve the disclosure of how
mortgage prepayment penalties are calculated.
While these new measures don’t
standardize penalty calculations, they do require that federally regulated
institutions implement the following over the next six to twelve months:
- Show on an
annual basis how customers can pay off their mortgages faster without incurring
prepayment charges.
- If a
penalty applies, advise customers in writing of the applicable prepayment
penalty with a description of how the charge was calculated.
- Improve
overall borrower awareness by providing enhanced information pertaining to
prepayment penalties.
- Provide
mortgage penalty calculators on their websites.
- Have a
toll-free phone line so customers can talk to knowledgeable staff about
mortgage prepayment penalties and find out the actual charge that would apply
to them.
This greater
clarification of prepayment penalties is certainly welcome news, although not a
replacement for professional mortgage advice.
If you have any questions on refinancing and prepayment penalties, talk
to us. We can review the terms of your current mortgage and help you make
a realistic assessment of your situation.
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