Applying for a mortgage: rights and responsibilities

From: Financial Consumer Agency of Canada

Federally regulated financial institutions (FRFI) must provide you with certain important information about your mortgage in or with your mortgage agreement. The information required depends on the type of mortgage you get. The most important information will be summarized in an information box.

Fixed-rate mortgages

If you apply for a fixed-rate mortgage, your federally regulated bank, insurance company, trust company or loan company must provide the following in or with your mortgage agreement.

What must be provided in the information box

  • Principal amount—the amount that is being borrowed
  • Annual interest rate—the interest rate being charged on the mortgage
  • Annual percentage rate (APR)—the annual cost, expressed as a percentage of the principal, including fees such as service charges, loan origination fees and administrative fees when applicable
  • Term—the period of time your mortgage agreement will be in effect
  • Date of advance—the date on which you will start being charged interest
  • Payments—the amount of your payments, and when they are due
  • Amortization period—the period of time it will take to pay off the mortgage in full
  • Prepayment privilege—the amount you can pay in a year, in addition to your regular payments, without being charged a penalty
  • Prepayment charges—how the rebates, charges or penalties will be calculated if you decide to repay your mortgage before the maturity date
  • Default insurance cost—the mortgage default insurance cost. This is insurance that protects the mortgage lender if you cannot make your mortgage payments
  • Other fees—other fees that may apply, such as a discharge fee, default charge or insufficient funds fee

Example: Information box for a fixed interest rate loan agreement

Additional information that must be provided

  • The total of your payments at the end of the term
  • Of that total, how much you will have paid in interest charges at the end of the term
  • The fact that your payments will be applied first to cover interest and other charges, and then to the outstanding principal
  • Optional services you accepted, such as disability or life insurance, how much they cost and what will happen (in terms of rebates, charges or penalties) if you decide to cancel these services
  • A description of the property (if any) being provided as security for the loan
  • Whether there were any broker fees (paid by the financial institution to a broker) included in the amount lent to you

Variable-rate mortgages

If you apply for a variable-rate mortgage, your federally regulated bank, insurance company, trust company or loan company must provide the following information in or with your mortgage agreement.

What must be provided in the information box

  • Principal amount—the amount that is being borrowed
  • Annual interest rate—the interest rate being charged on the mortgage
  • Determination of interest—how the interest rate is calculated
  • Annual percentage rate—the annual cost, expressed as a percentage of the principal, including fees such as service charges, loan origination fees and administrative fees when applicable
  • Term—the period of time your mortgage agreement will be in effect
  • Date of advance—the date on which you will start being charged interest
  • Payments—the amount of your payments, and when they are due
  • Amortization period—the period of time it will take to pay off the mortgage in full
  • Prepayment privilege—the amount you can pay in a year, in addition to your regular payments, without being charged a penalty
  • Prepayment charges—how the rebates, charges or penalties will be calculated if you decide to repay your mortgage before the maturity date
  • Default insurance—the mortgage default insurance cost. This is insurance that protects the mortgage lender if you cannot make your mortgage payments
  • Other fees—other fees that may apply, such as a discharge fee, default charge or insufficient funds fee

Example: Information box for a variable interest rate loan agreement

Additional information that must be provided

  • Based on your interest rate, an estimate of the total amount you will pay by the end of your term
  • An estimate of the total amount of interest you will pay during the term
  • If interest rate variations are linked to another rate, such as the prime rate, the financial institution must provide you, at least once a year, with a disclosure statement containing the following information:
    • the interest rate and outstanding balance at the beginning and end of the period covered by the statement
    • the amount of each instalment payment for the upcoming period, based on a forecast using the interest rate in effect as of the date of the disclosure statement

For variable-rate mortgages with fixed payments, the lender must also include the following in the agreement or disclosure document:

  • the annual interest rate that would result in your mortgage payment not covering the interest due for the period (sometimes called the “trigger rate”)
  • the fact that if the interest rate increases during your term, your amortization period will be longer

Notes

  • If the interest rate reaches the trigger rate, your lender may require you to increase your payments. Check the terms of your agreement.
  • If your amortization period has lengthened, your mortgage lender may require you to increase your payments at the next renewal period in order to bring your amortization back in line with the original amortization period

What you should do if you feel your rights are not being respected

If you feel that a federally regulated financial institution is not respecting your rights, contact the Financial Consumer Agency of Canada.  

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