Late disclosure of higher mortgage insurance premium leads to added costs for homebuyers and low settlement

Mr. and Ms. D wanted to purchase a home and applied for a mortgage. Because their down payment was less than 20% of the purchase price, the mortgage was required to be insured under Canadian mortgage rules, and the bank arranged mortgage insurance as part of the financing.

The bank approved the mortgage and issued an approval letter with an insurance premium of $33,790. Mr. and Ms. D agreed to the terms and signed the documents.  One day before closing, however, the bank sent closing documents to Mr. and Ms. D’s lawyer that included a mortgage insurance premium of $64,701. Mr. and Ms. D signed the revised documents with the higher premium because they felt they had no choice given that the closing was the next day.

After the first mortgage payment was processed, they complained to the bank that the insurance premium was much higher than they had originally agreed. The bank rejected the complaint saying that the corrected insurance premium was disclosed in the final mortgage documents, which Mr. and Ms. D reviewed with their lawyer and signed.

Mr. and Ms. D were not satisfied with the bank’s response, and they reached out to OBSI for assistance.

Complaint upheld

Our investigation found that the bank had made an error in the original mortgage insurance application and had become aware of the increase to the insurance premium more than two weeks in advance of the closing date but did not disclose the increase to Mr. and Ms. D until immediately before closing. This prevented Mr. and Ms. D from exploring the options available to them and planning their financial affairs accordingly. We recommended compensation of $30,911, which was the difference between the premium they agreed to and the premium they were charged. The bank did not agree and offered $15,456, which Mr. and Ms. D accepted.

We concluded that had the firm invested her accounts suitably, she would have lost only $8,697. We recommended compensation of $143,504. The firm did not agree and offered Ms. Y $120,000, which she accepted.

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