In today’s environment of economic uncertainty and housing affordability challenges, it’s more important than ever for mortgage professionals to ensure consumers are making informed decisions.
One key way to do this is by accurately calculating and disclosing the annual percentage rate (APR). The APR is designed to show the full cost of a mortgage, including interest, compounding, and fees.
However, the findings of FSRA’s previously announced compliance blitz revealed that borrowers are often not fully informed about the true cost of their mortgage.
Read on to learn more about our preliminary findings and what they mean for your business.
Context
Mortgage products can sometimes appear different but carry the same monthly payment, while others may seem cheaper upfront but cost more over time. The APR provides a consistent measure to help borrowers compare offers “apples to apples,” reflecting the complete cost of borrowing.
Your clients rely on accurate information to make the right mortgage decision. Disclosing the APR correctly is a critical part of ensuring they can do so.
Preliminary findings
So far our examinations found that:
- 36% of files had an understated APR, with required fees not included
- 37% of files included estimates that were not clearly labeled as such
- 21% of files had an overstated APR due to extra charges being added
Risks
For consumers, an inaccurate APR can lead to taking on a mortgage that is too expensive, creating financial stress, late payments, or in extreme cases, bankruptcy or a debt proposal.
For brokerages, misrepresenting the cost of borrowing increases the risk of legal action from borrowers who feel they were misled, as well as reputational damage.
What should I do to stay compliant?
Principal brokers should:
- review firm practices and provide additional training to brokers, agents, and staff as needed
- maintain detailed records
- conduct regular internal file reviews
- stay up to date on regulatory changes