Disclosing Material Risks

One part of the Ontario legislation which governs the mortgage broker industry (The Mortgage riskBrokerages, Lenders and Administrator Act) has to do with disclosing material risks. The MBLAA is very explicit about requirements related to disclosure. For example, potential conflicts of interest, fees and payments, cost of borrowing, to name a few. But when it comes to material risks, it behooves any mortgage broker/agent to go the extra mile and over-disclose!

In fact, there is a specific section in the Disclosure to Borrower document, oddly enough, called “Disclosure of Material Risks.” As per the MBLAA, for every mortgage transaction, the mortgage broker/agent must provide borrowers with a Disclosure to Borrower document. The document is pretty much identical from one mortgage brokerage company to the next, given the fact ninety percent of us all use the same software. The Disclosure to Borrower document does a good job of making sure the mortgage broker/agent has met all the disclosure requirements in the MBLAA. But, in this special section, the mortgage broker/agent has the opportunity to highlight any material risks, not already covered, or perhaps risks, that warrant repeating. Things like, the mortgage is fully closed, higher penalties to break, variable-rate vs. fixed-rate, longer amortization, ILA (independent legal advise), etc.

If your mortgage is fully closed, you represent a higher risk of default to any lender. This is not a mortgage term or condition you want. Nor is it associated with the favorable terms offered by a prime lender (i.e. major bank). However, it may be one of the terms if you had to go with a subprime lender.  Under these circumstances, the subprime lender willing to fund the deal has mitigated the risk by locking you in and guaranteeing themselves a ROI commensurate with the risk. The only way you can break a fully closed mortgage is if you sell the property.  Sound like something you would want?  Make sure you are aware of all the risks associated with your mortgage. Especially the material risks.

If I can help, let me know.