For Immediate Release
Toronto, ON, March 4, 2012 – The Canadian Bankers Association (CBA) today welcomed the new Code of Conduct that will make mortgage prepayment charges easier to understand for consumers. The CBA and its member banks worked closely with the federal government to develop the Code, which will provide bank customers with better information about the prepayment costs involved when paying a mortgage off early, the calculations and interest rates used to determine prepayment charges, and other options that are available for bank customers who want to increase their mortgage payments without incurring any charges.
“In the low interest rate environment of the past few years, many people wanted to break their mortgage to take advantage of lower interest rates, but may not have understood how mortgage prepayment charges were calculated,” said Terry Campbell, President of the Canadian Bankers Association. “With the new Code, every year bank customers will receive information that will help them better understand mortgage prepayment charges and how they are calculated if they want to pay their mortgage off early. The Code also builds on the advice that banks have always provided to make sure the customer is making an informed decision.”
When interest rates are declining and borrowers decide to break their mortgage contract, the bank will then lend that money to someone else at the current lower rate, resulting in a shortfall for the bank. The bank will allow the borrower to break the mortgage contract, but the borrower would need to pay a mortgage prepayment charge to help the bank manage its risk and cover its costs from the customer paying the mortgage off early. Typically those charges are three-months’ interest or the interest rate differential, whichever is greater.
Banks are prudent lenders and currently provide substantial amounts of information about mortgage prepayment calculations to consumers as required by federal regulations. The information that will be provided under this Code will provide even more clarity to borrowers.
The new mortgage prepayment code of conduct can be found on the CBA website at this link:
About the Canadian Bankers Association
The Canadian Bankers Association works on behalf of 53 domestic banks, foreign bank subsidiaries and foreign bank branches operating in Canada and their 267,000 employees. The CBA advocates for effective public policies that contribute to a sound, successful banking system that benefits Canadians and Canada's economy. The Association also promotes financial literacy to help Canadians make informed financial decisions and works with banks and law enforcement to help protect customers against financial crime and promote fraud awareness. www.cba.ca. Follow the CBA on Twitter: @CdnBankers
For more information:
Rachel Swiednicki, Canadian Bankers Association
Tel: (416) 362-6093, ext. 220
Cell: (416) 587-7733