Mortgages that were negotiated when interest rates were lower are now coming up for renewal at higher rates. FSRA views mortgage renewals as new and distinct transactions, which are different than simple extensions of existing contracts and terms.
This means you must do the appropriate due diligence, assess suitability more thoroughly and make full disclosures to keep your clients and your business safe.
Context
Historically low interest rates during the pandemic brought many new consumers into the housing market. But since 2022, lending conditions have become tighter which has led to unplanned mortgage payment constraints. As a result, it’s more important than ever that borrowers and investors receive suitable product recommendations.
For borrowers, a mortgage renewal means renegotiating mortgage terms with their current lender or a new lender when their mortgage matures.
Your responsibilities
Because renewals are new transactions, they require a more thorough evaluation of suitability than would be required to extend an existing contract where a possible extension of the term was initially contemplated. Remember, private mortgage renewals must be reviewed by an Agent Level 2 or broker.
Conducting a suitability assessment and providing required disclosures helps to address changes in consumers’ needs or circumstances and respond to market conditions at the time of renewal. This protects your clients from potentially unsuitable products which could damage their finances. Moreover, all the required due diligence and disclosures for a new mortgage deal also apply to a renewal. For example, you must verify a borrower’s identity, disclose relationships/conflicts of interests and material risks.
- When representing lenders and investors
You must complete the investor or lender disclosure Form 2 - Renewal Form[1] which now also includes a suitability section in Part F. - When representing borrowers
You must make appropriate disclosures to the borrower, including the total cost of borrowing. Don’t forget that even if there is only one brokerage in the transaction, adequate due diligence such as an appropriate suitability assessment of and disclosures to the borrower, is still required.
[1]New version of the Form 2 became effective on June 19, 2024 along with the Final Guidance: Mortgage Product Suitability Assessment which supports a fair treatment of consumers in the mortgage brokering sector.