Ottawa has published a new set of guidelines to standardize how Canada’s federally regulated lenders offer mortgage relief to consumers struggling under the weight of higher interest rates.
The new approach could save some mortgage holders on costly fees and penalties that come with refinancing, paying lump sums or otherwise altering the terms of their loans.
The guide published Wednesday from the Financial Consumer Agency of Canada seeks to alleviate the burden for homeowners and other mortgage holders with variable rates or those renewing their fixed-rate terms.
These mortgage holders have, in many cases, seen their monthly payments soar over the past year as the Bank of Canada raised interest rates by 4.5 percentage points since March 2022.
Variable rate mortgage holders have either seen their payments rise in lockstep with the central bank policy rate or seen their amortizations extended as more of their monthly payments go towards paying down rising interest.
Some homeowners who took out fixed-rate mortgages when rates were low during the COVID-19 pandemic, meanwhile, are today renewing into much higher interest rates and facing substantial jumps in their monthly payments.
The FCAC guide focuses on individuals who are at risk of defaulting on their mortgage as a result of higher payments in combination with a rising cost of living.
Banks and other lenders will sometimes offer various forms of relief for consumers struggling in these scenarios, but the FCAC’s new guidelines seek to standardize the approach from federally regulated institutions. The agency notes it cannot prescribe direct action that institutions should take, but has set expectations for what the lenders should consider in such circumstances.
For example, the guidelines recommend waiving prepayment penalties as well as internal fees related to altering mortgage terms, as well as not charging interest on interest.
In instances where banks consider extending the loan’s amortization — stretching out the period of time over which the mortgage is paid back to keep regular payments under control — the FCAC says this should be done “for the shortest period possible.”
Banks are also expected to closely monitor their mortgage books for consumers showing signs of risk. The agency calls on lenders to reach out proactively to Canadians who are at risk of financial distress to explain their options.
The guidelines mark the fulfilment of a promise from the Liberals’ 2023 budget, which pledged to establish a code of conduct to protect mortgage holders.
Finance Minister Chrystia Freeland spoke about the FCAC guidelines at an event in Toronto on Wednesday afternoon, saying the goal was to help Canadians struggling with their mortgages to get through ongoing economic difficulties.
“The guideline published today is intended to protect Canadians by ensuring their financial institutions treat them fairly and provide them with the tailored mortgage relief they need,” she said.