Skip to content

Client Update: Lender Code of Conduct Prepayment of Consumer Mortgages

GOVERNMENT ACTION

In the Economic Action Plan 2010, the Harper Government committed to bring greater clarity to how mortgage prepayment penalties were calculated. As part of the commitment, on February 26, 2013 the government released a voluntary code of conduct to ensure that federally regulated financial institutions provide enhanced information to consumers in respect to their mortgages and where a prepayment charge could apply.

MORTGAGE PREPAYMENT INFORMATION

Purpose
Under the federal regulations, which include items such as the federal cost of borrowing disclosure regulations and credit business practices regulations, lenders currently provide substantial amounts of information relevant to mortgage prepayments. Disclosure of this information allows borrowers to see the available options for prepayment of their mortgage loan and assist in helping the borrower make a more informed decision regarding the options that best suit his or her current needs. This new voluntary code of conduct is designed to provide borrowers with further information regarding prepayment charges and where they could apply.

Application and implementation
Lenders are to implement the policy elements of the code, with respect to new mortgages, no later than six months from date of adoption of the code for element 3 and element 4. Similarly, they are to implement these changes no later than 12 months from adoption of the code for elements 1, 2 and 5. Lenders are to apply the code to existing mortgage loans where it is feasible to do so. This code will not apply to mortgages that are entered into for business purposes by borrowers who are not natural persons.

Compliance
The code is voluntary; however, the Financial Consumer Agency of Canada has been tasked with monitoring and reporting on compliance with the code.

Presentation of the information
Lenders are to provide the information in language and in such a manner that is clear, simple and not misleading.Policy elements

  1. Information provided annually. Lenders will provide the following mortgage prepayment information to borrowers:
    1. Prepayment privileges that the borrower can use to pay off the mortgage faster without having to pay a prepayment charge;
    2. The dollar amount of the prepayment that the borrower can make on a yearly basis without having to pay a prepayment charge;
    3. Explanation of how the lender calculates the prepayment charge;
    4. Factors that could cause prepayment charges to change over time;
    5. Customized information about the mortgage for the purposes of the borrower estimating the prepayment charge. The customized information can include, the following:
      1. The amount of the loan that the borrower has not yet repaid;
      2. The interest rate of the mortgage and other factors that the lender uses to calculate the prepayment charge;
      3. The remaining term or maturity date of the borrower’s mortgage:For mortgages where the prepayment charge may be based on the interest rate differential; and
      4. How the lender determines the comparison rate to use to calculate the interest rate differential; and
      5. Where the borrower can find the comparison rate;
    6. Location of the lender’s financial calculators;
    7. Any other amounts the borrower must pay to the lender if the borrower prepays the mortgage and how the amounts are calculated; and
    8. How the borrower can speak with a staff member of the lender who is knowledgeable about mortgage prepayments.
  2. Information provided when the borrower is paying a prepayment charge. If a prepayment charge applies and the borrower confirms to the lender that the borrower is prepaying the full or specified partial amount owing on their mortgage, the lender will provide the following information in a written statement to the borrower:
    1. The applicable premium and charge;
    2. The description of how the lender calculated the prepayment charge;
    3. If the lender used the interest rate differential to calculate the prepayment charge, the lender will inform the borrower of:
      1. The outstanding amounts on the mortgage;
      2. The annual interest rate on the mortgage;
      3. The comparison rate that was used for the calculation; and
      4. The term remaining on the mortgage that was used for calculation;
    4. The period of time, if any, for which the prepayment charge is valid;
    5. The description of the factors that could cause the prepayment charge to change over time;
    6. Any other amounts the borrower must pay to the lender when the mortgage is prepaid, as well as how the amounts are calculated.
  3. Enhancing borrower awareness. To assist borrowers in better understanding the consequences of prepaying a mortgage, lenders will make available to consumers information on the following topics:
    1. The differences between:
      1. Fixed rate mortgages and variable rate mortgages;
      2. Open mortgages and closed mortgages; and
      3. Long-term mortgages and short-term mortgages;
    2. Ways in which a borrower can pay off a mortgage faster without having to pay a prepayment charge;
    3. Ways to avoid prepayment charges;
    4. How prepayment charges are calculated with examples;
    5. Actions by a borrower that may result in the borrower having to pay a prepayment charge, such as the following actions:
      1. Partially prepaying amounts higher than allowed by the borrower’s mortgage;
      2. Refinancing their mortgage; and
      3. Transferring their mortgage to another lender.

    Lenders may make this information available on their publically accessible websites and upon request by consumers at the lender’s place of business. In addition, each lender will provide on its website links to information on mortgages provided on the website of the Financial Consumer Agency of Canada.

  4. Financial calculators. Each lender will post calculators on its website for borrowers and provide guidance to borrowers on how to use the calculators to obtain the mortgage prepayment information they want.
  5. Borrower access to actual prepayment charge. Each lender will make available a toll-free telephone line through which borrowers can access staff members who are knowledgeable about mortgage prepayments.

The foregoing is intended for general information only. If you have any questions, or for more information on our practice group, visit our Commercial Real Property & Lending page.

SHARE

Archive

Search Archive


Search
Generic filters

 
 

Spring 2013 Labour & Employment Atlantic Canada Legislative Update

June 11, 2013

The following is a province-by-province update of legislation from a busy 2013 spring session in Atlantic Canada. Watching these developments, we know the new legislation that has passed or could soon pass, will impact our…

Read More

Client Update: Jury Duty – Time to Think Twice

June 6, 2013

The integrity of the jury system has become a pressing topic for our courts of late, with articles about jury duty frequently appearing front and centre in the press. The recent message from the Nova…

Read More

Doing Business in Atlantic Canada (Summer 2013)(Canadian Lawyer magazine supplement)

June 2, 2013

IN THIS ISSUE: Cloud computing: House to navigate risky skies by Daniela Bassan and Michelle Chai Growing a startup by Clarence Bennett, Twila Reid and Nicholas Russon Knowing the lay of the land – Aboriginal rights and land claims in Labrador by Colm St. Roch Seviour and Steve Scruton Download…

Read More

Client Update: The Personal Health Information Act (PHIA) is coming…..

May 27, 2013

DOES IT APPLY TO YOU? On June 1, 2013, the Personal Health Information Act (PHIA) comes into force in Nova Scotia.  If you are involved in health care in Nova Scotia, you need to know whether PHIA…

Read More

Atlantic Employers’ Counsel – Spring 2013

May 22, 2013

EDITOR’S COMMENT This edition of Atlantic Employers’ Counsel focuses on key areas of employment standards in Atlantic Canada. Employment standards legislation outlines the rights and obligations of employees and requirements that apply to employers in…

Read More

Client Update: Nova Scotia New tort of cyberbullying

May 17, 2013

NEW TORT OF CYBERBULLYING On May 10, 2013 the Nova Scotia legislature passed the Cyber-safety Act (Bill 61). When this bill comes into force, it will give rise to a new tort of cyberbullying that…

Read More

Client Update: Lender Code of Conduct Prepayment of Consumer Mortgages

May 2, 2013

GOVERNMENT ACTION In the Economic Action Plan 2010, the Harper Government committed to bring greater clarity to how mortgage prepayment penalties were calculated. As part of the commitment, on February 26, 2013 the government released…

Read More

Client Update: Corporate Services – Keeping you up to date

March 7, 2013

STEWART MCKELVEY WELCOMES BACK WANDA DOIRON AS MANAGER, CORPORATE SERVICES – NOVA SCOTIA You might remember Wanda from her time in our Corporate Services group from 2002 to 2008. Since then, she has worked in-house…

Read More

Atlantic Employers’ Counsel – Winter 2013

March 6, 2013

REASONABLE PEOPLE DOING QUESTIONABLE THINGS: CONFLICTS OF INTEREST AND JUST CAUSE Can a unionized employee moonlight in his off hours to earn some extra money by doing the same work he does for his daytime…

Read More

SVILA E-Discovery

March 5, 2013

Stewart McKelvey’s Vision Improving Legal Analysis (SVILA*) is an e-discovery project and litigation management tool. For more information on our e-discovery services, download the SVILA e-discovery document.

Read More

Search Archive


Search
Generic filters

Scroll To Top