What is the Canadian Mortgage Charter?

Nov 30, 2023

The Fall Economic Statement from the federal government focused extensively on Canada's housing situation. Rather than solely addressing the demand for homeownership, most of the new spending aims to tackle the pressing need for adequate and affordable shelter. However, there's a particular item that seems tailored to grab the attention of most homebuyers.

The Canadian Mortgage Charter aims to strengthen Ottawa's expectations regarding how federally regulated financial institutions should handle vulnerable borrowers.

It includes provisions such as:

- Allowing temporary extensions of amortization periods for at-risk mortgage holders

- Waiving fees and costs that “would have otherwise been changed for relief measures.”

- Exempting insured mortgage holders from re-qualifying under the stress test during lender switches at mortgage renewal.

Other requirements involve:

- Financial institutions contacting homeowners 4 to 6 months ahead of mortgage renewal to make them aware of their options.

- Granting at-risk homeowners the ability to make lump sum payments without prepayment penalties, and avoiding interest on interest by waiving charges in cases where relief measures result in payments not covering interest.

While these measures have generally received a positive reception, it's worth noting that most of them are already outlined in guidelines from the Financial Consumer Agency of Canada. They aren't legally binding, and there are currently no plans to enshrine them in legislation.

Recent surveys indicate that a significant percentage of homeowners facing mortgage renewals, ranging from 35% to nearly 90%, express concerns about potential increases in payments.

Including the Charter in the Fall Economic Statement seems to be a proactive move to reassure the growing number of homeowners worried about mortgage renewals amid the current high-interest rate environment.

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