What You Need to Know About FINTRAC
When you’re navigating the mortgage process, you might come across the term FINTRAC. But what exactly is it, and how does it impact you when you are being approved or even pre approved for a mortgage? In this post, we’ll break down FINTRAC and its relevance in your journey to homeownership.
What is FINTRAC?
FINTRAC stands for the Financial Transactions and Reports Analysis Centre of Canada. It’s Canada’s national financial intelligence agency and its main goal is to detect and prevent both money laundering and the financing of terrorism by monitoring financial transactions (AML). FINTRAC helps ensure that our Canadian Financials system is secure and that all transactions are legitimate. Its role focuses on ensuring that all financial transactions, including down payment for property purchases, are transparent and free from money laundering or terrorist financing risks. All mortgage lending institutions have the responsibility to verify the legitimacy of down payment sources, report large cash transactions and comply with necessary identification and documentation requirements.
In simple terms, AML aims to stop criminals from using banks and financial systems to hide or “launder” money gained from illegal activities, like drug trafficking or fraud.
Why Does FINTRAC Matter to You?
- Client Identification
As part of its mandate, FINTRAC requires financial institutions, including mortgage brokers and lenders, to verify the identity of their clients to ensure they’re not involved in illegal activities. This means that when you apply for a mortgage, we will need to collect specific information from you to confirm your identity. - Protection Against Fraud
By following FINTRAC’s guidelines, lenders and mortgage brokers help protect you from potential fraud. The measures in place are designed to safeguard your financial information and ensure that your mortgage application is processed securely. Knowing that these protocols exist can give you peace of mind throughout the process. - Transparent Transactions
FINTRAC also promotes transparency in financial transactions. This means that lenders are required to report certain transactions to FINTRAC, such as large cash payments or suspicious activities. This transparency is intended to foster a safer financial environment, benefiting you and other consumers.
What to Expect During the Mortgage Process
When you apply for a mortgage, be prepared to provide various forms of identification and documentation, such as:
- A government-issued photo ID (like a driver’s license or passport)
- Proof of your address (such as a utility bill)
- Many financial documents that verify your income and creditworthiness
- 90 day activity from the accounts that your down payment is coming from. Your mortgage broker will review and will be required to provide the paper trail to confirm that funds are from legitimate sources.
- Gift Letters: if a portion or all of your down payment is coming from a gift from family members, a gift letter (specific to the lender approving your mortgage) confirms that the funds are a gift and not a loan. This is to ensure that the down payment doesn’t represent a hidden loan, or another form of unreported debt.
- Other documents that may need to support certain unique situations.
Often times, we on the behalf of your lender, may ask for additional information to ensure compliance with FINTRAC regulations and while it may feel excessive to you, rest assured that these steps are in place to protect you and the integrity of the financial system.
How to Plan Ahead
Here are some simple tips to get ready:
- Organize Banking Statements: Keep all pages of your banking statements for the last 3-6 months in a folder. Since nowadays you will most likely have to upload documents, get set up with online banking, and learn to save documents as pdfs, to avoid having to print and scan. Your lender will need both your current balance and a record of the recent 90 days transactions at the time of submitting your mortgage application; so its a good idea to familiarize yourself with how to obtain the transaction activity as most bank statements have a monthly end date that may not line up with the date your offer was accepted.
- Limit Money Transfers: Try to avoid moving money between accounts for at least 3 months before buying a home. This can help reduce the amount of paper work required from you, to confirm source of down payment.
- Create a CRA My Account: This will let you access your Notice of Assessments (NOA), Statement of Accounts, and other important documents.
- Save Your T4s: Keep the last 3 years’ worth of T4s in a folder. The T4s from your employer will have your name, while those on the CRA site may not.
By staying organized, you can make the mortgage process smoother!
Conclusion
FINTRAC plays a critical role in maintaining the security and integrity of Canada’s financial landscape. As a mortgagee, understanding its purpose can help you feel confident around the reasons which may appear as “red tape”. Remember that the steps we and your lender takes to comply with FINTRAC regulations are designed not only to fulfill legal obligations but also to protect you from fraud and ensure a smooth transaction all the way until the keys to your new home are in your hand.
Happy Home Buying!
