The federal government unveiled a new mortgage charter this week as part of its 2023 fall economic statement. The charter “builds on the government’s existing guidance and expectations for how financial institutions are to work with Canadians to provide tailored relief and ensure payments are reasonable for borrowers,” according to the Department of Finance.
More specifically, the feds say that Canadian homeowners can now expect the following:
- Temporary extensions of the amortization period for mortgage holders at risk;
- waived fees and costs that would have otherwise been charged for relief measures;
- not having to requalify under the insured minimum qualifying rate when switching lenders at mortgage renewal (for insured mortgage holders);
- to be contacted four to six months in advance of their mortgage renewal to inform them of their renewal options;
- the ability to make lump sum payments to avoid negative amortization or sell their principal residence without any prepayment penalties;
- and no interest on interest in the event that mortgage relief measures result in a temporary period of negative amortization.
“Our goal is to help Canadians through an incredibly challenging time by making sure Canadians have the support they need to afford their homes when renewing at a time of higher interest rates,” Minister of Finance Chrystia Freeland said on Tuesday.
The charter has, generally speaking, been well-received by industry stakeholders. At the same time, experts say that the outlined measures don’t go quite far enough.
“It's a step in the right direction to protect Canadian mortgage holders, however, I think additional substantive measures are needed, particularly when we're thinking about folks that have mortgage renewals coming up over the next number of years,” Cecely Roy, Director of Communications for Mortgage Professionals Canada, tells STOREYS.
“We know that we've got a wave of renewals on the horizon. About 19% of the folks we surveyed over the summer are expecting to renew over the next year. And then that jumps all the way up to 65% in the next three years.”
Roy points out that, with the exception of the requirement for lenders to reach out to their borrowers four to six months in advance of their renewal date, “there isn’t a lot of new content” in the charter.
“The FCAC guideline that was released over the summer in response to exceptional circumstances for mortgage holders and the OSFI regulations for federally regulated financial institutions already had many of these pieces in place,” she says.
“And then the piece that says insured mortgages don't need to be stress tested again at renewal, switch, or transfer — well, that was already always the case, though it wasn't commonly known... I don't want to detract from the fact that it's important that the government recognizes there is significant pressure on folks with mortgages, but they're not going far enough to protect Canadian homeowners.”
Roy also notes that a more effective measure from the feds could be returning to a 30-year amortization period for insured mortgages.
“And that really would provide more opportunities for homeownership, especially for those folks that are looking to enter into the market. Because not only are we concerned about existing mortgage holders, but also prospective first-time buyers who want to get into the market,” she says.
“Of course, it's important to increase housing supply, as the government is focussing on, but I think we really need to see more tangible steps to support the growing number of middle-class Canadians who can’t afford to own a home.”
