Mortgage documents can sometimes be confusing for the homeowner. What do all those terms mean? And how are those calculations figured? Most importantly, what’s it all going to cost you in the end, and why? It’s these two last questions that Canadian banks have recently focused on when looking at homeowners that want to break their mortgage. When you break a mortgage, you are essentially pulling out of it. You may refinance with the same or a different lender, or you might just want to pay it off in its entirety, and be done with the whole thing. But whatever your reasons, breaking a mortgage does have some penalties involved. And now, Canadian banks have made those penalties easier to understand.
Yesterday the Canadian Bankers Association (CBA) announced that it now has a new Code of Conduct in place. The CBC worked very closely with its 53 bank members to try and come up with something that made a little more sense for those wanting to break their mortgage. The federal government currently has stipulations about how clear banks need to be, and how much they can charge customers that want out of their mortgages early. Now with the new code though, it will be clearer than ever before and this is going to be a huge benefit to homeowners, especially those not working with a mortgage broker and relying solely on their bank to be clear and upfront with them.
The new Code doesn’t just outline the rates and fees that customers can be charged for breaking their mortgage (although of course, it’s got those in there, too.) The Code also ensures that customers will be given new information every single year on breaking their mortgage, and what it’s going to cost them if they want to do so. Usually, a homeowner will be charged three month’s worth of interest, or the interest rate differential, whichever is greater. The amount of the prepayment penalty hasn’t changed any, but now homeowners will be better able to understand what they’re being charged, and why.
We’ve taken a look for ourselves, and the new Code really is easier to understand. Just over two pages long, the Code breaks down what information the customer can hope to receive throughout the year, and it leaves out the technical talk and just breaks the new rules down in plain English. If you’re thinking about breaking your mortgage early, or you just want to check out the new rules, you can by visiting the CBA website here.
