Ottawa is tackling what the Globe and Mail calls, “three irritating bank practices,” one of which involves the secrecy that often surrounds mortgage penalties. Also, the government will take on the holding period for newly deposited cheques and credit card convenience cheques. For more information on the changes being made to mortgage penalties, read an excerpt of the article below:
The sharp decline we’ve seen in mortgage rates over the past few years has prompted many people to think about breaking their mortgages in order to lock in lower borrowing costs. A mortgage penalty must generally be paid in this situation, but it’s exceedingly difficult to find out how much it is and how it’s calculated.
The government said in its 2010 budget that it would standardize the calculation and disclosure of mortgage penalties. The measures just announced don’t address the fact that mortgage lenders use different methods to calculate penalties, some of which hit borrowers harder than others. But they do require banks to:
These rules will be introduced over the next six to 12 months or so, and they apply specifically to new mortgages. The Department of Finance says the measures will be applied to existing mortgages “where it is feasible to do so.” Business mortgages are not covered.
The new mortgage regulations will require banks to show how they arrive at a mortgage prepayment penalty. However, they don’t standardize the calculation method. As it stands now, some lenders are more punitive than others with their penalties. For example, mortgage broker Jim Tourloukis said some lenders will calculate a penalty of three month’s interest based on the actual interest rate a client has, while others will use the higher posted rate that almost nobody pays.
“Without a doubt, the calculations should be standardized,” Mr. Tourloukis said. “It’s a dog’s breakfast right now.” — Rob Carrick, The Globe and Mail
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