Increases Now Require STEPs at Scotiabank

Scotiabank-MortgagesScotiabank is eliminating blends and increases on regular mortgages.

From this point forward, Scotia customers who want to add new money (without breaking their mortgage) will need to have, or convert to, a Scotia Total Equity Plan (STEP) mortgage.

The STEP is collateral charge financing that lets customers divide their mortgage into multiple segments, such as a long term or short term, fixed rate or variable rate, and/or a line of credit.

The upside here is that adding new money to a STEP lets the borrower select a whole new term and amortization for those new funds — if desired.

For example, if someone wants to add $75,000 to their 15-year $100,000 five-year fixed Scotia mortgage, the STEP lets them reset their amortization on that new money back to 25 years and choose an entirely different term, without needing to refinance. That can help keep payments and fees lower.

One downside is that most STEP mortgages are qualified at the five-year Benchmark rate, currently 4.99%. That means it may be harder to get approved when adding more money to a Scotia mortgage (versus certain other lenders that allow lower qualification rates on increases.)

Another potential downside is that increases will now require a collateral charge mortgage. While collateral charges save on legal fees when refinancing, they can also make it more expensive to switch lenders at maturity. That’s because collateral charges don’t qualify for free switches at most lenders, unlike traditional mortgages. Mind you, over two-thirds of Scotia customers are already in a STEP so this is a non-event for them.


David-StaffordIt appears this news got out to some brokers ahead of time and prompted concerns about what Scotia was actually eliminating. David Stafford, Managing Director, Real Estate Secured Lending at Scotiabank, assured us: “In this case, the only thing that we’re not going to do going forward is blending new money into an existing mortgage.”

This change applies to all Scotia customers, including existing customers. Albeit, Scotia may need to make exceptions for some clients on older contracts.

The changes apply equally to all Scotia channels (retail and broker). Scotia cites regulatory, accounting, funding (securitization) and efficiency considerations as reasons for the change. That last one is especially key with margins so competitive. “We have to keep finding ways to make things more efficient,” Stafford explains.

This news does not impact blends and extends, where the loan amount stays the same. Those will still be possible on Scotia’s regular (non-collateral) mortgages.

Tip: For Scotia customers who need more money and want to stay in a non-collateral charge mortgage, one option is to add a collateral line of credit in second position, behind their non-collateral first mortgage. Speak to a broker or Scotia banker for more information.

Update – March 18, 2014: Scotia said it planned to roll out this change on March 8. But it has since been delayed–possibly until late March or early April.

Rob McLister, CMT (email)

  1. Imagine a world when you have to actually own the money you want to spend, not borrow them :). Crazy, a ?

  2. In a STEP, qualification is the same. 5year or more with contracted rate, under 5year or variable 4,99%. Kind regards

  3. To alleviate the problem of collateral charge mortgages making it more expensive to switch lenders, this is easily fixed if the lender, perhaps in conjunction with the broker, assuming the mortgage from the previous one would agree to absorb 100% of legal & financing costs/fees. This is essentially what the self-directed discount brokerage industry has done for years – they take a hit to assume new assets under administration by way of fee reimbursements but charge those fees on transfer out so net-net, it works out at zero. :)

  4. If someone just wanted to add a new portion with the higher amount to their existing step that is now down to 3 years, they would have to use benchmark rate. They may not want to lose the rate they have on their existing term.

  5. This seems to be a fairly significant change of policy that is slipping under the radar. I haven’t yet seen Scotia send any announcements out on this policy change. Brokers now need to complete a client/product suitability form, so would need to know this info to advise clients properly.

  6. I have a STEP, I was told by a broker to break my mortgage and go somewhere else I would need a lawyer to undue all the STEP stuff. I am somewhat confused as to the STEP. I have a HELOC which I can draw upon in emergency case at prime + 0.5%. I don’t see how Scotia could keep me come renewal time?

  7. You’re free to go whenever you wish….however, with a colateral mortgage the receiving institution will have to treat you’re mortgage as a ‘refinance’ costing you fees for registering a new mortgage lien. If you did not have a colateral mortgage, at renewal you would simply do a ‘switch’ to another institution with no further registration costs to you. Nothing changes if you keep renewing with same institution. Hope this clarifies.

  8. Is blend-and-extend eliminated for clients that want to move to a new term and not borrow any extra money?

  9. Little confuesd with the statement “This news does not impact blends and extends, where the loan amount stays the same. Those will still be possible on Scotia’s regular (non-collateral) mortgages.”
    How can a client blend and/or extend when no new money is added to the loan?

  10. Client would add time to their contract but no new money. It is an option for the client to reduce their interest rate w/o paying a penalty. Normally used in a declining interest rate environment.

  11. Blends and extends also let people lock in for longer without breaking their mortgage, helpful in a rising rate environment.

  12. Hey Rob, you say “most” institutions will not do a straight switch/transfer on a collateral charge… do you know of any that will? You can even email me if you wish.

  13. Hi Ryan,
    That’s a good question to ask. The point that collateral charges don’t qualify for “free switches at most lenders” refers to how some lenders offer free refinance packages. In those limited cases, folks with collateral charges can move to another lender without legal and/or appraisal fees.
    In precise technical terms, however, I know of no lenders that do true “straight switches” (assignments) of a collateral charge.

  14. RBC will offer as part of a refinance-switch in to pay the basic legal fee package if you utilize their title insurance provider. The only cost for the client is new land title registration fees which normally only amount to about $60-$100 but depends on the value of the registration.

    1. It is technically possible if your mortgage is registered for a low enough amount to give you sufficient equity. The official answer is no, however. Scotiabank does not allow it. If you put on a second you are taking a chance that the bank finds out.

  15. 1) If we have a Scotia total Equity plan with a limit of $200,000. and have used this amount in full, and Scotia charge the security for an amount of $300,000. 00 with this plan, can we obtain additional funds in the mount of $100,000. without redoing the original Mortgage agreement?

    2). As above, however the original $200,000. was a secured line of credit, and Scotiabank agreed to the additional $100,000.00 but as a fixed rate mortgage for $300,000. under the same equity plan. In this scenario, would the agreement of the Line of credit be totally wiped out with the new fixed rate mortgage?

    3) Same scenario as in 1 & 2 above, however when we switch to the fixed rate mortgage, we wish to also switch the Principal borrowers and guarantor, as well as pledge a different property as collateral. Can this all be achieved under he original Step plan, and if it is possible, again does the new fixed rate mortgage wipe out the original LOC and charge against the original property charged? If not does Scotiabank, now have both properties as security, when e expected that only the last property pledged would be the property secured by the bank?

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