June 17, 2015
Unfortunately, for many Canadians, comparing mortgage products is very difficult. Financial institutions have built an industry based on obscurity and technical figures that the average Canadian simply doesn’t have the time to decode. If you’ve ever tried to determine the penalty for breaking your mortgage, you’ve probably experienced exactly what we’re referring to. Difficulty in accessing critical information, and disguising these metrics with unnecessary technical jargon are two common ways that lenders are making it tough for Canadians to make informed mortgage decisions.
Luckily, our government is beginning to step in. Last month, the Finance Department said that it’s increasing the voluntary mortgage disclosure program to all lenders in Canada. Previously, only banks had to comply.
A good first step, but…
Make no mistake, this is a great step in the right direction for Canadian home buyers and the financial sector. However, there is still work to be done. Even by complying with the voluntary mortgage disclosure program, lenders are still able to muddy their figures for Canadian consumers. In fact, lenders seem to purposely make it difficult for Canadians to find the information they need, or even understand the information they’re looking at.
How do they do it?
One common tactic that lenders use to comply with regulation while maintaining obscurity is through the use of a mortgage calculator.
Mortgage calculators seem like a great way for consumers to easily plug in their information and find out exactly what their fees would be under various circumstances. In reality however, many of these calculator tools ask for incredibly specific information that the average consumer wouldn’t readily have on hand. It’s hassles like this that lead Canadians to ultimately sign on to a product that might not actually be the best for their unique needs.
Simply put, lenders are leveraging a position of power. Lenders know that there is a lot that goes into the purchase of a house, and by creating unnecessary confusion and additional hurdles, consumers may not give this decision the attention it deserves.
Why do they do it?
In a word; competition. Mortgages are essentially the same product. There may be different mortgage terms and repayment structures that you can choose from, but the cost to the investor can be easily comparable across any combination of these when presented with an annualized figure. In fact, to take it a step further, a lender could provide you with examples of exactly how your fees may change based on various situations. A recent article in the Globe and Mail does a great job of illustrating exactly what this could look like.
Taking you back to Economics 101, you may recall that when a market for a good has many suppliers selling essentially the same product there is only one option left for differentiation: price. And, as you may imagine, competition on price alone will ultimately lower the overall profit margins, market wide. This is not to say that we are accusing banks of collusion, however, it’s clear to see that consumers are currently at an informational disadvantage in the mortgage market.
So, what’s the solution?
The recent move by the finance department is certainly a step in the right direction. However, there is still more that needs to be done to really level the playing field, and allow the average consumer the transparency needed in order to make an informed decision.
We can help.
At Safebridge Financial we help our clients gain a deep understanding about mortgages, as well as other investment products. We will work with you to ensure you’re well aware of any requirements or restrictions that are involved with your mortgage, before you commit.
If you’d like to learn more about what we do, and how we can help you to optimize your entire financial position, please get in touch with us. We’re here to help.
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