Mortgage Terms and Conditions

This is the 13th article in our Mortgage Life Cycle Costs series.   

What do we mean by Mortgage Life Cycle Costs and why write so much about this seemingly unimportant topic?  Isn’t a mortgage just about getting the lowest rate?  See the 1st article in this series for a more complete explanation, but briefly stated, Mortgage Life Cycle Costs are additional, non-interest mortgage costs that you could/will incur during your mortgage term.  These costs are often indistinct, usually incurred later in the term and their severity depend on the lender, loan type, loan terms & conditions, product, interest rate, interest rate type, etc.  Mortgage Life Cycle Costs can significantly exceed the comparatively small interest savings of an enticing, but limiting, slightly lower interest rate. 

By over-focusing on interest rates at the cost of the rest of the mortgage details, you can incur significant, but potentially avoidable mortgage life cycle costs.   

While we believe interest rates are important, we also think interest rates can distract us from fully investigating other very important mortgage aspects.  Here is why we think interest rates can be a distraction.  Canada’s largest banks are a saturated oligopoly.  Oligopolists are typically very large and powerful, interdependent businesses that usually don’t risk competing by price [interest rates for mortgages], instead they compete by image, retention, etc.  A quick review of banks’ websites should confirm our banks’ oligopolist relationships with each other; interest rates are very similar and widely published but very little if any details or education is available about the retention power of their specific mortgage products, terms & conditions etc.  Therefore, why over-focus on obvious interest rates if banks’ rates are similar and rates aren’t their primary way of competing?  Shouldn’t we be more concerned about what we are not being told?  Wouldn’t we get better mortgages if we ask more questions about proposed mortgage products, their terms & conditions and potential consequential limitations and costs?  We think so, hence we have created these articles to draw your attention to mortgage life cycle costs and their potential to limit and far exceed appealing, slightly reduced interest rate savings. 

MORTGAGE TERMS & CONDITIONS 

In this 13th article we are discussing mortgage terms & conditions, their retention power, potential life cycle costs, etc. and why you cannot afford to ignore them. 

INTRODUCTION

Before my Mortgage Broker career, my most existing thing about a mortgage was the house and life I purchased with it.  I found the mortgage process boring, and I felt like I was drowning in a sea of never ending, repetitive, mortgage documents and signatures.  I knew I could afford my mortgage, so I naively signed everything my bank and lawyer asked me to sign and filed the documents never to look at them again….  I didn’t care about cost of borrowing, privacy agreements, standard charge terms, or their consequences, let alone where to find them if I wanted to. 

Mortgage terms & conditions are a vast, intimidating and frankly boring subject.  Reading, investigating, and understanding your mortgage’s terms and conditions is about as exciting as watching paint dry.  For these reasons most of us don’t investigate our mortgages beyond the upfront numbers even though we know we should.  I understand you probably won’t read a lengthy, laborious article about mortgage terms and conditions, so this article’s goals are: 

  • Beyond the Numbers: Draw your attention to the importance of your mortgage’s terms & conditions. 
  • Guide Map: Provide you with general information and guide you to where you can find your mortgage’s terms & conditions, etc. 

Note: I am not a lawyer, and I am not providing you with legal advice.  It is essential that you consult your solicitor about your mortgage and its terms & conditions.  I won’t be discussing mortgage terms & conditions in details and my writings are purely anecdotal based on my experience as a Mortgage Broker.  

GENERAL INFORMATION

Let’s discuss a few general topics before we get into the bulk of the material. 

  • Legal Representation: You may not know this, but even though you are paying for his/her services, your real estate lawyer might be representing your lender or you both.  Some think this might be a conflict of interest. 
  • Not Negotiable: Lender terms and conditions are usually not negotiable.  The borrower either takes the mortgage or leaves.  Consequently, lenders and borrower don’t have equal bargaining power, making mortgage agreements essentially one-sided.   
  • Balance of Power: The average borrower has far less resources than their mortgage lender.  This means most borrowers don’t have the knowledge, legal resources, time, or funds to fully equip themselves or litigate against their lender. 
  • Disclosure – Details: As a Mortgage Broker I have a suitability responsibility towards my clients and a fiduciary responsibility to National Housing Act approved mortgage lenders.  Although I try my best to understand and protect my clients against poor mortgage terms & conditions, their lawyer is the only one qualified to legally interpret their mortgage terms & conditions.  While your lawyer is obligated to provide you with copies of all your mortgage terms & conditions, how many borrowers have the resources to pay their lawyer the additional hours to review and explain their mortgage terms & conditions?  This unintentionally adds to the imbalance of power and on-sidedness of mortgage agreements. 
  • Disclosure – Timing: While you usually receive a copy of your mortgage commitment soon after your mortgage has been approved, you typically only receive copies of the remaining terms and conditions from your lawyer a few days before your closing date.  If so, is there anything meaningfully you can do about it this late in the process?  
  • Details Matter: While your mortgage agreement and accompanying documents will state your mortgage terms & conditions, their application and consequences are typically vague, situational, and unexplained.  The devil is in the details.  E.g. Collateral mortgages 

TERMS AND CONDITIONS ROAD MAP

It is very easy to get lost in the sea of mortgage documents during the mortgage process.  In this section I’ll show you where you can usually find your mortgage terms & conditions.   

Note: While the details below can vary between lenders, this section applies to most prime, National Housing Act [NHA] approved lenders. 

  • The Mortgage Commitment: Your final mortgage commitment is your starting point in your terms & conditions road map.   
    • Timeline: You should expect your Mortgage Broker/bank to review your mortgage commitment with you shortly after the final mortgage approval
    • The mortgage commitment letter usually covers the following: 
      • Conditions of the Mortgage Approval: These are the terms & conditions that you need to fulfill prior to the mortgage closing date.  These normally include your mortgage supporting documents, etc. 
      • Conditions for the Solicitor: Although not all the solicitor instructions, these conditions usually include property occupancy verification, loans that the solicitor needs to pay out, identity verifications, etc. 
      • General Conditions and Information: This part of the commitment provides you important mortgage information such as payout penalties, pre-payment privileges, fire insurance requirements, etc. and refers to the lender’s privacy agreement, the Standard Charge Terms [STCs] that apply to this mortgage as well as the lender’s Cost of Borrowing Disclosure Statement and mortgage loan agreement that you will receive and sign at your solicitor’s office. 
      • Standard Terms & Conditions: This part of the commitment might refer to title insurance requirements, National Housing Act [NHA] regulations, etc. 
  • Mortgage Loan Agreement: This document includes your loan details, terms & conditions, potential fees, penalty details, defaults and remedies, pre-payment privileges, etc. 
    • Timeline: Your solicitor will present this document to you for your review and signatures as part of the mortgage closing process.  
  • Standard Charge Terms [STCs]: A set of standard mortgage terms, standard charge terms or optional covenants incorporated into your mortgage by reference to their filing number.  E.g. ON-201509.  The lender’s commitment letter should refer to the mortgage’s applicable STCs.  
    • Timeline: Your solicitor will provide you with copies as part of the mortgage closing process    
  • Cost of Borrowing Disclosure Statement: This document includes your cost of borrowing, including the Annual Percentage Rate [APR].  
    • Timeline: Your solicitor will present this document to you for your review and signatures as part of the mortgage closing process. 

I hope this article alerted you to the various mortgage terms and conditions that could affect your mortgage.  More importantly I trust you will investigate your mortgage terms and conditions when you look for a mortgage, not right before the mortgage closing date when it might be too late.   

Disclaimers: 

  • The opinions expressed in this article are the opinions of the author only and not of anyone else or any other entity. 
  • Not legal, economic, financial, accounting or any other professional advice. 
  • Not for decision-making purposes. 
  • Subject to eligibility, lender approval, terms & conditions, etc. 
  • In any and all cases of any conflict of any kind about anything whatsoever, lender rules, guidelines, terms & conditions, interest rates, etc., supersede presented information. 
  • Subject to change in any or all ways, at any time, without prior notification or warning. 
  • Does not include all, may exclude some and/or may only partially represent guidelines, mortgage rules, scenarios, topics, etc. 
  • Not specific to any particular mortgage lender or mortgage related product, information may be inconclusive, incomplete and/or covered somewhere else, etc.  Products, underwriting guidelines, etc. vary between lenders. 
  • Highlighted, bold, capitalized, italicized, text is for effect only and cannot be separated in any way from the rest of the information.  
  • Subject to all borrowers seeking independent professional advice from any and all providers as determined solely by the borrower, at the borrower’s own and sole discretion, prior to applying for or making changes to a mortgage/loan. 
  • E.&O.E.