When a mortgage matures, financial institutions already allow a return to the initial amortization, explains Hugo Leroux, president of Hypotheca. For example, you had a 25-year amortization, you paid 5 years of principal and interest, and you amortize the remaining amount over another 25 years. “The problem is that insured loans have a maximum of 25 years. Are we now going to allow them to be put over 30 years? And if we allow it, will we have to go back to the notary and pay this new loan document again? asks Hugo Leroux. The loan deeds recorded by the notary are for the initial term. And usually, we cannot deviate from this number of years. Technically and legally, I don’t know how the bank will be able to put a term longer than what is on the loan document. »
“There are mechanisms when a customer needs help,” explains Hugo Leroux. For example, it can defer payments to the end of the term. It’s included in the contract. There may be a fee of $50 for deferring a payment at the end of the term, $50 for skipping a payment, $200 to $250 for renewing your mortgage in the middle of the term. At first glance, it appears that these are the types of fees that are affected by the charter. We don’t talk about interests. »
If you have an insured mortgage loan that is maturing and you want to change financial institution, the charter suggests that your new lender does not carry out a stress test. This famous test verifies your eligibility for a loan by adding 2% to the proposed mortgage rate. The statement does not specify whether a borrower could then add an amount to the loan or extend the amortization period.
When your loan is up for renewal, your institution already communicates with you by email or letter five to six months in advance, observes Hugo Leroux. “We would have liked the banks to communicate in advance with customers when rates were about to rise so that they could renew before their term. Today, there is no reason for a customer to renew early because we expect rate cuts perhaps in 2024. Our advice is instead to stretch a low rate until the last minute. »
If you have $50,000 in available cash, you will be able to make an early payment on your loan. However, according to Hugo Leroux, mortgage loans already have a clause that allows 15 to 20% of the balance amount to be repaid early without penalty. “Someone who has a loan of $300,000 can already put $50,000 right away with the lender without penalty,” he observes. But whoever can do it shouldn’t be too nervous about his rate and making his payments. »
If you ever sell your property before the end of the term of your mortgage loan, because you are against the wall, the charter suggests that your financial institution does not charge you the penalty for early repayment of a mortgage. Institutions have the choice between two penalties and usually choose the most profitable for them: three months of interest or the rate differential. “That means that if the bank lent you at 6%, you repay it and it has to lend to someone else at 4%, it has a loss of 2%,” explains Hugo Leroux. If you had three years left, multiply by 2%, that’s 6%. On your $300,000 loan, that’s $18,000 in penalty. I do not believe that the banks will agree to abolish this penalty. »
To illustrate this, here is a fictitious case: In your monthly payment of $2,000, you pay $1,700 in interest and $300 in principal. The bank agrees to lower your payment to $1500 for six months. This $1500 payment will not cover interest. He’s going to be short $200. “Usually, this amount is added to the capital to be repaid by the client and the financial institution charges interest on this $200,” indicates Hugo Leroux. What this charter proposes is that if the new monthly amount does not cover the interest, the institution does not charge you interest on this new amount, $200 in our example. »