Last Tuesday (November 21, 2023), Deputy Prime Minister and Federal Minister of Finance, Chrystia Freeland presented the 2023 Fall Economic Update and introduced the new Canadian Mortgage Charter – providing guidance for Canadian homeowners who may be struggling with their mortgage payments or upcoming renewals.
Let's take a look at these 'new' initiatives in the Charter below, 6 key items:
1. Allowing temporary extensions of amortization periods for mortgage holders at risk
- It's in a lender's best interest to help their clients maintain their payment schedules and just 'sound business'
- Lenders have a myriad of tools to help a struggling client, and is situation dependant – extending amortization periods are an option, and represents just one of the tools available to support a constructive relationship
2. Waiving fees and costs that would have otherwise been charged for relief measures
- Already exists as part of OSFI guidance a few weeks ago, and have been adopted by most (if not all) lenders
3. Not requiring insured mortgage holders to requalify under the insured minimum qualifying rate when switching lenders at renewal
- Already exists as part of OSFI guidance a few weeks ago, and have been adopted by most (if not all) lenders
- Note, insured mortgages represent a small cohort of the Canadian majority, who have uninsured mortgages
4. Contacting homeowners 4-6 months in advance of their mortgage renewal to inform them of their renewal options
- Already exists
- You automatically enter the 'renewal period' 4 months before mortgage expiry - regardless of whether a lender contacts you
- Lenders and mortgage brokers may extend their contact window to 6 months to advise on the upcoming renewal
5. Giving homeowners 'at risk' the ability to make lump sum payments to avoid negative amortization, or sell the principal resident without any prepayment penalties
- Already exists, related to #2 above
6. Not charging interest on interest, in the event that mortgage relief measures result in a temporary period of negative amortization
- If mortgage payments are missed (principal and interest), the unpaid interest gathers more interest
- A discussion with the bank will help resolve these issues through a mutual agreement, but again lender dependant
- Options have always been open to discuss with a lender
Sadly, the creation of the Charter does not bring any new relief for at-risk Canadians, BUT it does bring awareness of the challenges and possible solutions / discussions to pursue.
Aside from political posturing, the key takeaway is to work with knowledgeable professionals and to not take everything in the news at face value!