Understanding your Rights When You Get a Mortgage in Canada
Congratulations, you’ve found your dream home and you’re ready to sign the deal and move in! First, you’ll likely need financing. When you’re getting a mortgage, it’s important that you don’t get too wrapped up in the prospect of buying a new home and forget that you have rights.
Federally regulated financial institutions are required to provide you with certain information in writing on your mortgage document. This information must be in clear language. Here are some of the rights you’ll want to keep in mind when you’re getting a mortgage or renewing a mortgage.
Applying for a Mortgage
The information that you are required to be given will depend on the type of mortgage you get.
In a fixed-rate mortgage, you must be provided with:
- The amount being borrowed (the principal)
- The annual interest rate being charged on the mortgage
- The annual percentage rate (APR)
- The term of your mortgage agreement
- The date on which you will start being charged interest
- The amount of your payments and when they are due
- The amount you can prepay each year without being penalized
- How costs will be recalculated if you decide to repay your mortgage early
- The mortgage insurance cost
- Any other fees that will be charged
In a variable-rate mortgage, you must be given all of the information above as well as details on how the interest rate is calculated and a disclosure statement. This statement must list the interest rate and outstanding balance at the beginning and end of the period covered by the statement and the amount of each instalment payment for the upcoming period.
With any mortgage, the most important details must be summarized in an information box.
Other information that must be provided include an estimate of the total interest you will pay by the end of your term, an estimate of the total payments you will make by the end of the term, and whether any broker fees were paid by the financial institution to a broker.
A Co-Signer or Guarantor for a Mortgage
If you cannot qualify for a mortgage on your own, you may be able to do so if you have a co-signer or guarantor. Despite the fact that these terms are often used interchangeably, it is important to be aware of the differences.
A co-signer actually becomes a co-owner on a property and is responsible for mortgage payments (though they may not make any). For example, if a person buys a property with their spouse, the spouse would be a co-signer. A person may ask someone to co-sign for them to give their mortgage application strength.
On the other hand, a guarantor personally guarantees that the mortgage payments will be made, but does not become a co-owner of a property. A guarantor typically has to be financially stronger as they become responsible for the entire mortgage if the homeowner defaults.
In Canada, mortgage insurance is mandatory for down payments between the minimum of 5% and 19.99%. In addition, if you are self-employed or have a poor credit history, you may be required to pay for mortgage insurance even if your down payment is greater than 20% of the purchase price. Remember that there is a cost to mortgage insurance.
Mortgage insurance is not available if your purchase price is greater than $1 million or the loan does not meet the insurance company’s standards.
Renewing a Mortgage
Financial institutions are required to provide you with a written renewal statement at least 21 days before the end of your current term. If the institution decides not to offer a renewal, they must inform you at least 21 days before the end of the term.
You are not required to renew your mortgage with the same financial institution that currently holds your mortgage and you are not required to accept their renewal terms.
Changes to a Mortgage Agreement
Any changes to the information that you received when you initially agreed to the mortgage must be provided to you by the financial institution within 30 days of the date the amendment was made. This information must be provided in writing or electronically (only if you have agreed to receive information electronically).
If you feel as though your rights are not being respected, contact the Financial Consumer Agency of Canada.