OTTAWA, ONTARIO--(Marketwire - Sept. 5, 2012) - A mortgage is a big financial commitment, and the faster it is paid back, the less interest consumers pay on the loan. If the mortgage agreement allows prepayments, and those payments are made, the resulting savings could be in the thousands of dollars. In some cases, a mortgage can be paid off faster by making additional lump-sum payments, or by increasing regular payments throughout the term.
On the other hand, breaking a mortgage contract, or prepaying more than the privileges allow, could result in prepayment charges in the thousands of dollars.
"Consumers can now get enhanced information about mortgage prepayments and have tools at their disposal to help them calculate approximate charges. This will help borrowers when they are making decisions about prepaying their mortgage," says Ursula Menke, Commissioner of the Financial Consumer Agency of Canada (FCAC).
The new voluntary Code of Conduct on mortgage prepayment was announced in March 2012 by the the Honourable Ted Menzies, Minister of State (Finance), and Shelly Glover, Parliamentary Secretary to the Minister of Finance, to help Canadian consumers achieve greater control over their own finances. Banks that are members of the Canadian Bankers Association (CBA) have agreed to adopt this Code.
FCAC will monitor and report on compliance with the Code, and the Agency has updated its website to provide consumers with more information about the Code and their rights and responsibilities on mortgage prepayments.
Elements of the Code now in effect are element three, Enhancing Borrower Awareness, and element four, Financial Calculators. Banks that have agreed to adhere to the Code will provide information on the following topics:
-- calculators on their websites to help estimate prepayment charges
-- differences between mortgage options, such as fixed-rate and variable-rate, open and closed terms, and short-term and long-term mortgages
-- ways consumers can pay off a mortgage faster without paying a prepayment charge
-- ways to avoid prepayment charges
-- how prepayment charges are calculated, along with examples of charges
-- actions that may result in consumers having to pay a prepayment charge, such as prepaying more than is allowed in the agreement, refinancing a mortgage or transferring a mortgage to another lender before the end of the term of the mortgage.
The remaining elements of the Code come into effect on March 5, 2013.
With educational materials and interactive tools, the Financial Consumer Agency of Canada (FCAC) provides objective information about financial products and services to help Canadians increase their financial knowledge and confidence in managing their personal finances. FCAC informs consumers about their rights and responsibilities when dealing with banks and federally regulated trust, loan and insurance companies. FCAC also makes sure that federally regulated financial institutions, payment card network operators and external complaints bodies comply with legislation and industry commitments intended to protect consumers.
You can reach us through FCAC's Consumer Services Centre by calling toll-free 1-866-461-3222 (TTY: 613-947-7771 or 1-866-914-6097) or by visiting our website: itpaystoknow.gc.ca.
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