Many consumers fail to understand meaning of terms
By GARRY MARR, Financial PostMarch 10, 2010
When it comes to your mortgage contract, watch your language.
Most consumers only look at their mortgage contract -- one of the most important documents they will ever sign -- just before they are about to close on a house, says Toronto real-estate lawyer Steve Brett.
"It's very rare they come to me [first].
In residential transactions, they usually strike the deal first," he says. "The mortgage commitment comes shortly prior to closing. I'll talk to people over the phone and they'll say, 'These are the terms of the deal -- is that the way it should be?' " For about $200, Mr. Brett says a consumer could run a pre-approved mortgage by him before buying a house. "But in 35 years, I've never had that happen.
I sometimes might get asked [to look at a mortgage contract] on refinancing." Even the most basic mortgage contract terms, such as what constitutes the "prime rate" on a variable-rate mortgage, can create confusion.
"There can be different meanings to things like the prime rate or the base rate," Mr. Brett says. "They could have prime rate of 2%, but the base rate for residential mortgages might be prime plus one [percentage point], so their prime rate becomes 3%. Clients could get into difficulty thinking they are getting a heavily advertised prime rate but they are not." He had a customer come in recently with an offer of financing from a mortgage broker that said he was getting the "prime rate" from a specific company. "I pointed out that [their version] of prime rate might not be the same as the banks'.