Incorrect Scotiabank advice leads to $400 monthly mortgage increase for homeowner
If something seems too good to be true, it probably is. From free condos to suspiciously cheap rentals, the adage is never more true than in the world of real estate.
For Vancouver resident Ashley Leung, the saying pertains to a variable rate mortgage.
Leung and her fiancé, Stephen, bought their first home together in February. While shopping around for a mortgage, they spoke with a home financing advisor at Scotiabank. After discussing their options, the advisor suggested a variable rate mortgage.
With murmurings of impending interest rate hikes, the couple understood there were risks involved with pursuing such a path. However, Leung said the advisor told them that regardless of any hikes, they would still pay a fixed amount every month.
“He told us what would happen [if rates rose] is that more of what we pay would go into interest, but our payment each month would remain the same unless the interest surpasses 80% of the payment,” Leung told Daily Hive.
Under a capped variable rate mortgage, payments remain fixed for a pre-determined period of time, of up to a certain threshold of rate increases. If interest rates rise, more of your monthly payments go towards interest; if rates fall, payments go towards your principal.
Under an adjustable variable rate mortgage, monthly payments are automatically regulated to reflect a change in interest rates.
A stable monthly payment was one of her “top criteria” for picking a mortgage, Leung said, as she didn’t want to be burdened by increasing monthly expenses. The advisor “repeatedly assured” her that such a situation would not occur, she says, and so the couple chose to sign with Scotiabank.
But, in the midst of signing the agreement, Leung’s lawyer told her that her monthly payment was not fixed. It was the day before her home was set to close. In shock, she called the advisor. Again, she said he “guaranteed” that even if interest rates rose, her payments wouldn’t.
“Our home was going to close the next day and we couldn’t get another bank to approve a mortgage so quickly at that point,” Leung said. “We had no other choice but to trust him.”
One month later, the Bank of Canada raised interest rates by 0.25%. And Leung’s monthly payments increased.
Confused and frustrated, she again reached out to the advisor. He was “confident” there had been a mistake, he told her, and would connect with his colleagues to resolve the issue.
Leung then got a call from a Scotiabank branch manager, who informed her she’d been given incorrect information; her monthly payment really had gone up, and it would continue to do so.
Six months and three interest rate hikes later, Leung’s monthly mortgage payments have increased by more than $400.
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In an email to the homeowner and shared with Daily Hive, the advisor admits he made a mistake. However, Leung alleges that neither the advisor nor Scotiabank has done anything to remedy the situation.
“I have apologised [sic] for the incorrect information about the fixed payment to variable terms at Scotiabank,” the April 19 email reads.
“I have just realised [sic] Scotiabank is the only bank who doesn’t offer statistics (fixed) payment to variable terms…I had a misunderstanding.”
Daily Hive received an email from the advisor on June 30 stating that he would have to discuss any potential media requests with his management. However, no further response was received, and continued attempts to contact him went unanswered.
Leung said a Senior Manager of Sales at Scotiabank – to whom the issue was escalated – stopped replying to her emails on June 8. His final email to her reads, in part, “While I can sympathize, there is nothing that can be done at this point.” Attempts to contact him by Daily Hive went unanswered.
“Scotiabank has not taken any responsibility for giving us the wrong information,” she said.
“We want to be able to trust that the specialist knows what they are talking about but unfortunately this is not our experience and now we are paying the price.”
Leung, a nurse, told Daily Hive that a recent knee injury kept her away from work for two months. Between the lost wages and the ever-increasing mortgage payments, she and her fiancé, who works as a software developer, are “pinching pennies.”
“I don’t want what happened to me to happen to anyone else because this has become a nightmare for us,” she said.
Consumer protections for mortgages
The Financial Consumer Agency of Canada (FCAC) protects Canadians by strengthening financial literacy and supervising the compliance of federally regulated financial entities, including banks like Scotiabank, regarding their legislative obligations, codes of conduct, and public commitments.
The FCAC told Daily Hive that when obtaining a mortgage from a federally regulated financial institution, said institution must disclose certain information including the amount of the loan, the term, amortization period, interest rate, and prepayment penalties.
“They must do so in a manner, and using language, that is clear, simple and not misleading,” the FCAC said.
Consumers are encouraged to ask questions if anything is unclear, or if they are not sure about what they’re signing.
On June 30, a new financial consumer protection framework went into effect across Canada. The framework “holds banks to a higher standard” and requires that they take “greater responsibility for consumer outcomes.”
Under the framework, banks must strengthen their complaint-handling procedures, including dealing with customer complaints within 56 days, and provide more information to customers so that they can make “informed and timely decisions.”
Banks are also required to meet “higher standards” regarding their sales practices, including by providing products and services to customers that are “appropriate based on their financial needs and circumstances.”
When contacted by Daily Hive, a communications spokesperson for Scotiabank said the bank was “unable to comment on specific customer matters for privacy reasons.”
“Scotiabank offers a range of mortgage options, including variable and fixed-rate mortgages to meet the different needs of our customers,” the spokesperson said in a statement.
“We are committed to being clear and transparent in every interaction we have with our customers and encourage them to also read the terms of their mortgage prior to signing so we can answer any outstanding questions and offer additional support. We also encourage our customers to contact us if they have any questions so that we can help address their needs. Customers can learn more about Scotiabank’s mortgage options through our online Mortgage Centre.”