Mortgage, Money and Dream – Our thoughts on Canadian Mortgage Market
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Today, Ted Menzies, Minister of State (Finance) announced several measures to protect Canadian consumers.

The most interesting among those is the new mortgage pre-payment penalty guideline.

According the ministry announcement;

It requires (the new code of conduct or guideline) that federal financial institutions explain the differences between mortgage products, including ways to pay off a mortgage faster without incurring penalties. The Code also requires that they provide more information on how prepayment charges are calculated.

According to Financial Consumer Agency of Canada (FCAC) the guideline will come into effect tomorrow March 5th, 2012. After ten years, Compliance and Enforcement Branch (CEB) took the

initiative to look into this matter, they now published this guideline.

According to the commission;

The Commissioner of FCAC expects FRFIs to provide consumers with mortgage prepayment penalty disclosure that would allow them to understand and calculate the penalty amount. This would ensure that consumers have the information they require to make informed decisions regarding this significant financial commitment.

FRFIs are expected to incorporate the following into their mortgage prepayment disclosure documents:

  • FRFIs must disclose the manner in which a mortgage prepayment charge or penalty is actually calculated.
  • In relation to element #1, FRFIs must provide a description of all the components included in the calculation of the mortgage prepayment penalty.
  • Disclosure must be made in language, and presented in a manner, that is clear, simple, and not misleading.
  • Disclosure of a complex calculation must be accompanied by a simplified method to estimate the mortgage prepayment penalty.

The commission also said that – Each FRFI is responsible to address the elements of this Guidance by May 7, 2012 and for ensuring full compliance with the regulatory requirements by November 5, 2012.

A detailed analysis will follow.