IRD Finally to Be Disclosed Correctly to Consumers

Finally the Ugly Penalty Calculation of IRD is going to be closed correctly to consumers within the next 12 months. Below is the new Federal regulations coming into effect:

1. Information Provided Annually

Lenders will provide the following mortgage prepayment information to borrowers annually:

Prepayment privileges that the borrower can use to pay off their mortgage faster without having to pay a prepayment charge. Examples include making lump-sum prepayments, increasing the regular payment amount, and increasing the frequency of the payment to weekly or bi-weekly.
The dollar amount of the prepayment that the borrower can make on a yearly basis under the terms of their mortgage without having to pay a prepayment charge.
Explanation of how the lender calculates the prepayment charge for the borrower’s mortgage (for example, a certain number of months’ interest or the Interest Rate Differential (IRD).
Description of the factors that could cause prepayment charges to change over time.
Customized information about the mortgage, valid as of the date the information is produced, for the purposes of the borrower estimating the prepayment charge. The customized information will include, depending on the type of mortgage product held by the borrower:
The amount of the loan that the borrower has not yet repaid
The interest rate of the mortgage and other factors (for example, rate discount or posted interest rate) that the lender uses to calculate the prepayment charge
The remaining term or maturity date of the borrower’s mortgage
For mortgages where the prepayment charge may be based on the IRD:
How the lender determines the comparison rate to use to calculate the IRD
Where the borrower can find the comparison rate (for example, on the lender’s website)
Where the borrower can find the lender’s financial calculators that the borrower can use, along with the information above, to estimate the prepayment charge.
Any other amounts the borrower must pay to the lender if the borrower prepays their mortgage and how the amounts are calculated.
How the borrower can speak with a staff member of their lender who is knowledgeable about mortgage prepayments. For example, borrowers may contact a staff member through a toll-free number as described in section 5.

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 a specified partial amount owing on their mortgage, the lender will provide the following information in a written statement to the borrower:

The applicable prepayment charge.
Description of how the lender calculated the prepayment charge (for example, whether the lender used a certain number of months’ interest or the IRD).
If the lender used the IRD to calculate the prepayment charge, the lender will inform the borrower of :
the outstanding amount on the mortgage
the annual interest rate on the mortgage
the comparison rate that was used for the calculation
the term remaining on the mortgage that was used for the calculation
The period of time, if any, for which the prepayment charge is valid.
Description of the factors that could cause the prepayment charge to change over time.
Any other amounts the borrower must pay to the lender when they prepay their mortgage and 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:

Differences between:
Fixed-rate mortgages and variable-rate mortgages
Open mortgages and closed mortgages
Long-term mortgages and short-term mortgages
Ways in which a borrower can pay off a mortgage faster without having to pay a prepayment charge. Examples include making lump-sum prepayments, increasing the regular payment amount, and increasing the frequency of the payment to weekly or bi-weekly.
Ways to avoid prepayment charges (for example, by porting a mortgage).
How prepayment charges are calculated, with examples of the prepayment charges that would apply in specific circumstances.
Actions by a borrower that may result in the borrower having to pay a prepayment charge, such as the following actions:
partially prepaying amounts higher than allowed by the borrower’s mortgage
refinancing their mortgage
transferring their mortgage to another lender

Lenders may make this information available on their publicly accessible Canadian website where products or services are offered and upon request by consumers at the lender’s places of business in Canada, including when consumers are pre-approved for a mortgage. Â In addition, each lender will provide on its publicly accessible Canadian 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 publicly accessible website for borrowers, and provide guidance to borrowers on how to use the calculators to obtain the mortgage prepayment information they want. Borrowers will be able to enter information about their mortgage into the calculator to get an estimate of the current prepayment charge. Borrowers will also be able to change the information they enter, such as the amount of the mortgage that has not yet been repaid or the remaining term, so that they can see how the payment choices they make affect the prepayment charge.

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. These staff members will be able to orally provide a borrower with the actual prepayment charge that would apply to the borrower’s mortgage at that point in time. These staff members will also be able to provide to a borrower, on request, a written statement of their prepayment charge, accurate as at the time the statement is produced. A lender will not proceed to take steps to pay out a mortgage until the borrower has confirmed that the borrower’s intention is to pay out the mortgage.

Original Article taken from: http://www.fin.gc.ca/n12/data/12-025_3-eng.asp

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