Broker frustrated by bank's 'mortgage vacations'

by |
One broker is frustrated with having to explain the downside of taking  “mortgage payment vacations” and is calling on the big banks offering them to come clean with their clients.

“We need to start calling a spade a spade: Mortgage vacation is such an oxymoron, it’s more like voluntarily putting yourself in debtor’s prison; they should be required to spell out the compound effect,” Layth Matthews of Rate Miser told MortgageBrokerNews.ca. “You’re somewhat at the mercy of what the client wants; if the banks are out there flogging 40-year amortizations or flogging mortgage vacations the clients come in thinking that that’s a perk, how do you explain to them (it’s not in their best financial interest)?

“You basically have to un-sell them and that is a tough thing to do when you have great big bank branding behind it.”

These so-called “vacations” currently being hawked by TD are anything but, according to Matthews, who believes such terms are marketing newspeak effectively encouraging clients to add to their debt loads.

“Our society already has enough trouble with saving money, so the idea of a mortgage vacation is misleading,” Matthews said. “If you (need) to do the math to see what skipping a mortgage payment means 25 years down the road.

“I think if lenders are going to offer mortgage vacations they should be required to spell out the long-term consequences on a 25-year amortization of skipping one payment.”

And he believes such marketing is detrimental to the financial well-being of Canadians.

“People have kind of become so nihilistic in the marketing department they don’t care; they’re not really trying to help people become better off financially, they’re just trying to sell products, which is crazy,” Matthews said. “What they should be doing is using their genius to come up with ways to get people to do healthy things, to make healthful decisions attractive.”
 
  • Cindy Freiman on 2014-02-05 6:16:21 PM

    A "Mortgage Vacation" is false advertising as far as I'm concerned! I cringe every time I see the banks advertising this "option"! It's giving a false sense of security to homeowners. The commercials make it seem like homeowners can take advantage of this feature at any time, which is so not the case!

  • Darlene Hinton on 2014-02-06 4:48:45 PM

    What?!!! Have the bank give full disclosure??!
    That's just crazy!
    Explain features and subsequent costs involved? Isn't that what brokers do?
    Wait a minute. . ?

  • Leo the lender on 2014-02-10 3:40:30 AM

    What is the alternative to a client losing their job, or coming into sudden financial hardship??? Your standard mortgage product will offer you nothing except perhpas one skip a payment option, and then what??? Missed payment and defaults. The mortgage vacation offered by TD is offered as a flexible option for a client who has pre-paid their mortgage via increased payments or lumpsum payments.
    It is intended to help a client out how may have come across a cash flow shortfall suddenly and will not be able to make their payments. Another perfecgt example is the self employed individual who needs to slow down business due to pregnancy and will not recieve E.I payments. A Payment reduction or Vacation in this instance can mean the difference between a balance budget or missed payments on a credit products.
    Of course no should be encouraged to miss payments on wha is usally their largest and most costly debt product. But it would be very comforting to know that if I found myself in a tight squeez, I have the option to lower or eliminate my payments for up to 4 months. This can perhaps allow me time to get my finances together. I woudl say that is great peice of mind.

  • gerry on 2014-02-11 11:22:30 AM

    Might be interesting if the artcle writer & the broker got the facts straight. I don't need to expand upon Leo's comments any futher, he is quite correct. I have one client whose income flucuates widely throughout the year and asked if he banked a couple of extra payments can he then take a 'vacation' for a couple of months when his work is slow during the winter.

  • Layth Matthews on 2014-02-11 2:24:13 PM

    Hello,
    I stand corrected by Leo and Gerry's comments. I did not know the lender or the terms of the "mortgage vacation" option. I was reacting to the name. I actually like the product as Leo has presented it, because it invites pre-payments without fear of consequences, should a need arise down the road. Beautiful. Nevertheless, at the end of the day, it is still an invitation to sleep within the confines of the debt cycle. At the end of the day, you're on your own kids, don't forget.

  • Salim on 2014-03-22 1:28:39 PM

    Everyone's situation is different. In general, a Mortgage Payment Vacation is a costly way to balance your monthly budget if you are having cash flow problems unless you were smart enough to do pre-payments when times were good. The Banks interest is not in saving you money, its to increase profits.
    Their marketing of payment vacations is like saying potato chips are good for you because they are sugar free.

  • Paul Therien - CENTUM on 2014-03-24 1:10:36 PM

    Payment "Vacations" have been around for decades, they were simply not called that before - they were called "Payment Deferrals" and the truth is that most lenders have always offered this to customers who have had a financial situation arise that caused them to be in a financial pickle. I was using them 20 years ago to help many of my customers out if needed and as a last resort. Many lenders have used them to assist the consumer who have experienced a short term money issue as a tool to avoid foreclosure.

    All it simply means is that the clients payment is moved to the end of the term, so instead of 60 months, it is 61 months. Yes the customer pays an additional month in interest, but, the bank does disclose that in the documentation that the customer signs for the payment deferral. The only thing that TD has done with this is to turn it into a marketed consumer product that is more widely available. This will certainly draw some customers to them, especially those that entered into a large mortgage where they are maxed out on the payments and have very limited room to accommodate sudden changes to their economic situation.

Broker news forum is the place for positive industry interaction and welcomes your professional and informed opinion.

Name (required)
Comment (required)
By submitting, I agree to the Terms & Conditions