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Hidden camera reveals how bank employees mislead and upsell on pricey credit card insurance

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A Marketplace hidden camera investigation is raising questions about how bank employees are selling a pricey and controversial product marketed to help with credit card payments if you lose your job or get sick.

It’s called credit card balance insurance, or balance protection insurance — and if you’ve signed up for a credit card, chances are you’ve been asked to buy it.

But many experts say the insurance comes with high fees — typically a percentage of a cardholder’s outstanding balance — and so many exclusions it can be hard to make a successful claim.

“If it mostly disappears from the market, that’s a good thing,” said John Lawford, a consumer rights lawyer and executive director of the Public Interest Advocacy Centre (PIAC).

“It’s expensive, it doesn’t cover a lot of situations, and it pays out a very small amount most of the time,” he said. “It really is garbage.”

Marketplace took a hidden camera inside some of Canada’s biggest banks — visiting Bank of Montreal, CIBC, Royal Bank and Scotiabank branches in the Toronto area — to investigate how bank employees marketed balance protection insurance when a customer signed up for a new credit card.

It revealed employees using questionable tactics or confusing and inaccurate information to sell the insurance at all banks but one.

RBC was the only bank where Marketplace was not offered the product during the hidden camera investigation.

CIBC: Added insurance without permission

In a confusing exchange, the employee at CIBC had already added the insurance to a credit card before there was a chance to decline the balance protection.

“You can delete it any time you want,” she said. “It’s easy. You just have to pick up the phone and call. That’s it.”

A look at why balance protection insurance is called ‘high risk’ for consumers:​

It’s expensive, doesn’t cover a lot of situations, and it pays out a very small amount most of the time. So why are banks selling it? CBC Marketplace goes undercover to find out. 2:09

After she was told to delete it, the employee acknowledged she should have asked first before adding the product to the credit card.

In a statement to Marketplace, CIBC wrote that the interaction “does not reflect our expectations or practices. If an issue is identified, we investigate immediately and take appropriate action to address the situation.”

BMO: No knowledge of product

At BMO, an employee seemed to have little grasp of the insurance product she was selling, struggling to explain balance protection insurance when asked to describe what it was.

“It’s an insurance … balance,” said the employee, before grabbing a brochure about the product and reading aloud from it.

BMO told Marketplace it takes any concerns from customers “seriously” and has “processes in place to review and address them when they are raised.”

Many financial experts say credit card balance insurance comes with high fees and so many exclusions it can be hard to make a successful claim. (CBC)

Scotiabank: Misinforms about coverage

At Scotiabank, an employee provided inaccurate information about what the insurance covered, claiming that the bank would pay off an entire credit card balance if someone lost their job.

Scotiabank’s balance insurance only pays 10 per cent of an outstanding balance — up to $5,000.

In a statement to Marketplace, Scotiabank wrote that its “employees receive ongoing training on our available creditor insurance solutions.”

‘We are misleading the client’

Multiple customer service representatives from Canada’s big banks have described the aggressive and questionable tactics used to get people to sign up for the insurance.

“We are misleading the client,” one employee at a big bank told Marketplace. Marketplace is not naming the employee, who fears he could lose his job for speaking out.

  • Watch the hidden camera investigation on Marketplace at 8 p.m. Friday on CBC TV and online.

The bank employee said he and his colleagues are under pressure to meet sales targets by trying to sell credit card balance insurance to every customer who takes out a credit card.

“Balance protection is something that’s a scam,” he said. “It’s just something to take clients’ money.”

It’s estimated that millions of Canadians pay for insurance on their credit cards. (CBC)

He and his colleagues would sometimes sign customers up for products like credit card balance insurance without their knowledge, the employee said.

Other times at his bank, he said, they wouldn’t tell customers the insurance was optional — even though they are legally required to do so. “So for example, we’d say … ‘This credit card comes with insurance,'” he said.

Sales reps often also don’t have a full understanding of the product they’re selling and are told to stick to a script, the employee said.

One example from that script involved citing examples of people who signed up for balance protection and were covered by the insurer after making a claim, he said.

But he said he’s witnessed many clients come into the branch to make a claim and get denied.

‘High risk for consumers’

Marketplace also spoke to a number of unhappy customers with Canada’s big banks who said employees signed them up for balance protection without their knowledge or misrepresented the product.

In one case, TD refunded a customer more than $6,000 after he said he had been unknowingly signed up for the insurance and had been paying a premium for years.

PIAC executive director John Lawford says credit card balance insurance isn’t worth it for consumers, calling it ‘pure profit’ for the banks. (CBC)

Last year, the Financial Consumer Agency of Canada (FCAC) conducted a six-month review of sales practices inside the big banks — an investigation prompted after more than 3,000 current and former employees from all the major banks wrote to CBC’s Go Public about the pressure to push products to meet sales targets.

In May, the consumer watchdog warned a parliamentary committee that it had found credit card balance protection “problematic,” saying the tactics used to sell the product were a “high risk” to consumers and that the insurance was “often sold without the appropriate explanation of how it works.”

Despite FCAC finding some evidence of misleading sales tactics, none of Canada’s financial institutions have been fined.

Advocate wants credit card insurance gone

After reviewing the findings of Marketplace’s hidden camera investigation, Lawford said he was struck by how the bank employees really didn’t seem to understand the product they were selling.

He said he hopes Canada’s financial institutions will follow the lead of other major banks around the world that have stopped selling the balance protection insurance, such as the Bank of America and Australia’s Commonwealth Bank.

Regulators in the U.S., Australia and the U.K. have collectively fined banks billions for misleading consumers, including similar practices.

Meanwhile, the Canadian government has tabled new legislation that, if passed, would create a more robust consumer protection framework, similar to ones that have existed for years in both the U.S. and the European Union.

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Real Estate

5 ways to reduce your mortgage amortization

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Since the pandemic hit, a lot of Canadians have been affected financially and if you’re on a mortgage, reducing your amortization period can be of great help.

A mortgage amortization period is the amount of time it would take a homeowner to completely pay off their mortgage. The amortization is typically an estimate based on what the interest rate for your current term is. Calculating your amortization is done easily using a loan amortization calculator which shows you the different payment schedules within your amortization period.

 In Canada, if you made a down payment that is less than the recommended 20 per cent of the total cost of your home, then the longest amortization period you’re allowed to have is 25 years. The mortgage amortization period not only affects the length of time it would take to completely repay the loan, but also the amount of interest paid over the lifecycle of the mortgage.

Typically, longer amortization periods involve making smaller monthly payments and having a much higher total interest cost over the duration of the mortgage. While on the other hand, shorter amortization periods entails making larger monthly payments and having lower total interest costs.

It’s the dream of every homeowner to become mortgage-free. A general rule of thumb would be to try and keep your monthly mortgage costs as low as possible—preferably below 30 per cent of your monthly income. Over time, you may become more financially stable by either getting a tax return, a bonus or an additional source of income and want to channel that towards your principal.

There are several ways to keep your monthly mortgage payments low and reduce your amortization. Here are a few ways to achieve that goal:

1. Make a larger down payment

Once you’ve decided to buy a home, always consider putting asides some significant amount of money that would act as a down payment to reduce your monthly mortgage. While the recommended amount to put aside as a down payment is 20 per cent,  if you aren’t in a hurry to purchase the property or are more financial buoyant, you can even pay more.

Essentially, the larger your down payment, the lower your mortgage would be as it means you’re borrowing less money from your lender. However, if you pay at least 20 per cent upfront, there would be no need for you to cover the additional cost of private mortgage insurance which would save you some money.

2. Make bi-weekly payments

Most homeowners make monthly payments which amount to 12 payments every year. But if your bank or lender offers the option of accelerated bi-weekly payment, you will be making an equivalent of one more payment annually. Doing this will further reduce your amortization period by allowing you to pay off your mortgage much faster.

3. Have a fixed renewal payment

It is normal for lenders to offer discounts on interest rate during your amortization period. However, as you continuously renew your mortgage at a lower rate, always keep a fixed repayment sum.

Rather than just making lower payments, you can keep your payments static, since the more money applied to your principal, the faster you can clear your mortgage.

4. Increase your payment amount

Many mortgages give homeowners the option to increase their payment amount at least once a year. Now, this is very ideal for those who have the financial capacity to do so because the extra money would be added to your principal.

Irrespective of how small the increase might be, in the long run, it would make a huge difference. For example, if your monthly mortgage payment is about $2,752 per month. It would be in your best interest to round it up to $2,800 every month. That way, you are much closer to reducing your mortgage amortization period.

5. Leverage on prepayment privileges

The ability for homeowners to make any form of prepayment solely depends on what mortgage features are provided by their lender.

With an open mortgage, you can easily make additional payments at any given time. However, if you have a closed mortgage—which makes up the larger percentage of existing mortgages—you will need to check if you have the option of prepayments which would allow you to make extra lump sum payments.

Additionally, there may also be the option to make extra lump sum payments at the end of your existing mortgage term before its time for renewal.

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Real Estate

Mortgage insurance vs. life insurance: What you need to know

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Your home is likely the biggest asset you’ll ever own. So how can you protect it in case something were to happen to you? To start, homeowners have a few options to choose from. You can either:

  • ensure you have mortgage protection with a life insurance policy from an insurance company or
  • get mortgage insurance from a bank or mortgage lender.

Mortgage insurance vs. life insurance: How do they each work?  

The first thing to know is that life insurance can be a great way to make sure you and your family have mortgage protection.

The money from a life insurance policy usually goes right into the hands of your beneficiaries – not the bank or mortgage lender. Your beneficiaries are whoever you choose to receive the benefit or money from your policy after you die.

Life insurance policies, like term life insurance, come with a death benefit. A death benefit is the amount of money given to your beneficiaries after you die. The exact amount they’ll receive depends on the policy you buy.

With term life insurance, you’re covered for a set period, such as 10, 15, 20 or 30 years. The premium – that’s the monthly or annual fee you pay for insurance – is usually low for the first term.

If you die while you’re coved by your life insurance policy, your beneficiaries will receive a tax-free death benefit. They can then use this money to help pay off the mortgage or for any other reason. So not only is your mortgage protected, but your family will also have funds to cover other expenses that they relied on you to pay.

Mortgage insurance works by paying off the outstanding principal balance of your mortgage, up to a certain amount, if you die.

With mortgage insurance, the money goes directly to the bank or lender to pay off the mortgage – and that’s it. There’s no extra money to cover other expenses, and you don’t get to leave any cash behind to your beneficiaries.

What’s the difference between mortgage insurance and life insurance?

The main difference is that mortgage insurance covers only your outstanding mortgage balance. And, that money goes directly to the bank or mortgage lender, not your beneficiary. This means that there’s no cash, payout or benefit given to your beneficiary. 

With life insurance, however, you get mortgage protection and more. Here’s how it works: every life insurance policy provides a tax-free amount of money (the death benefit) to the beneficiary. The payment can cover more than just the mortgage. The beneficiary may then use the money for any purpose. For example, apart from paying off the mortgage, they can also use the funds from the death benefit to cover:

  • any of your remaining debts,
  • the cost of child care,
  • funeral costs,
  • the cost of child care, and
  • any other living expenses. 

But before you decide between life insurance and mortgage insurance, here are some other important differences to keep in mind:

Who gets the money?

With life insurance, the money goes to whomever you name as your beneficiary.

With mortgage insurance, the money goes entirely to the bank.

Can you move your policy?

With life insurance, your policy stays with you even if you transfer your mortgage to another company. There’s no need to re-apply or prove your health is good enough to be insured.

With mortgage insurance, however, your policy doesn’t automatically move with you if you change mortgage providers. If you move your mortgage to another bank, you’ll have to prove that your health is still good.

Which offers more flexibility, life insurance or mortgage insurance?

With life insurance, your beneficiaries have the flexibility to cover the mortgage balance and more after you die. As the policy owner, you can choose how much insurance coverage you want and how long you need it. And, the coverage doesn’t decline unless you want it to.

With mortgage insurance through a bank, you don’t have the flexibility to change your coverage. In this case, you’re only protecting the outstanding balance on your mortgage.

Do you need a medical exam to qualify? 

With a term life insurance policy from Sun Life, you may have to answer some medical questions or take a medical exam before you’re approved for coverage. Once you’re approved, Sun Life won’t ask for any additional medical information later on.

With mortgage insurance, a bank or mortgage lender may ask some medical questions when you apply. However, if you make a claim after you’re approved, your bank may ask for additional medical information.* At that point, they may discover some conditions that disqualify you from receiving payment on a claim.

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Real Estate

5 common mistakes Canadians make with their mortgages

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This article was created by MoneyWise. Postmedia and MoneyWise may earn an affiliate commission through links on this page.

Since COVID-19 dragged interest rates to historic lows last year, Canadians have been diving into the real estate market with unprecedented verve.

During a time of extraordinary financial disruption, more than 551,000 properties sold last year — a new annual record, according to the Canadian Real Estate Association. Those sales provided a desperately needed dose of oxygen for the country’s gasping economy.

Given the slew of new mortgages taken out in 2020, there were bound to be slip-ups. So, MoneyWise asked four of the country’s sharpest mortgage minds to share what they feel are the mistakes Canadians most frequently make when securing a home loan.

Mistake 1: Not having your documents ready

One of your mortgage broker’s primary functions is to provide lenders with paperwork confirming your income, assets, source of down payment and overall reliability as a borrower. Without complete and accurate documentation, no reputable lender will be able to process your loan.

But “borrowers often don’t have these documents on hand,” says John Vo of Spicer Vo Mortgages in Halifax, Nova Scotia. “And even when they do provide these documents, they may not be the correct documentation required.”

Some of the most frequent mistakes Vo sees when borrowers send in their paperwork include:

  • Not including a name or other relevant details on key pieces of information.
  • Providing old bank or pay statements instead of those dated within the last 30 days.
  • Sending only a partial document package. If a lender asks for six pages to support your loan, don’t send two. If you’re asked for four months’ worth of bank statements, don’t provide only one.
  • Thinking low-quality or blurry files sent by email or text will be good enough. Lenders need to be able to read what you send them.

If you send your broker an incomplete documents package, the result is inevitable: Your mortgage application will be delayed as long as it takes for you to find the required materials, and your house shopping could be sidetracked for months.

Mistake 2: Blinded by the rate

Ask any mortgage broker and they’ll tell you that the question they’re asked most frequently is: “What’s your lowest rate?”

The interest rate you’ll pay on your mortgage is a massive consideration, so comparing the rates lenders are offering is a good habit once you’ve slipped on your house-hunter hat.

Rates have been on the rise lately given government actions to stimulate the Canadian economy. You may want to lock a low rate now, so you can hold onto it for up to 120 days.

But Chris Kolinski, broker at Saskatoon, Saskatchewan-based iSask Mortgages, says too many borrowers get obsessed with finding the lowest rate and ignore the other aspects of a mortgage that can greatly impact its overall cost.

“I always ask my clients ‘Do you want to get the best rate, or do you want to save the most money?’ because those two things are not always synonymous,” Kolinski says. “That opens a conversation about needs and wants.”

Many of the rock-bottom interest rates on offer from Canadian lenders can be hard to qualify for, come with limited features, or cost borrowers “a ton” of money if they break their terms, Kolinski points out.

Mistake 3: Not reading the fine print

Dalia Barsoum of Streetwise Mortgages in Woodbridge, Ontario, shares a universal message: “Read the fine print. Understand what you’re signing up for.”

Most borrowers don’t expect they’ll ever break their mortgages, but data collected by TD Bank shows that 7 in 10 homeowners move on from their properties earlier than they expect.

It’s critical to understand your loan’s prepayment privileges and the rules around an early departure. “If you exit the mortgage, how much are you going to pay? It’s really, really important,” Barsoum says.

She has seen too borrowers come to her hoping to refinance a mortgage they received from a private or specialty lender, only to find that what they were attempting was impossible.

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