Improving Prepayment 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.