In the recent Fall Economic Statement (FES), the Liberal government introduced the Canadian Mortgage Charter (CMC) as a measure to assist homeowners facing financial challenges amid rising interest rates.
This initiative aims to provide clear guidelines for financial institutions on how to support vulnerable borrowers.
In this blog post, we’ll break down what the Canadian Mortgage Charter is, whom it intends to help, and what rules it establishes. If you have any questions – please feel free to reach out to us anytime!
What is the Canadian Mortgage Charter?
The Canadian Mortgage Charter is not a law, but a set of guidelines outlined in the Fall Economic Statement.
Think of it as a list of rules and expectations for banks to follow, emphasizing the treatment of borrowers in challenging financial situations.
Key Guidelines of the Canadian Mortgage Charter:
Temporary Extensions on Amortization Period:
Banks are expected to allow temporary extensions on the amortization period for mortgage holders facing financial strain.
Waiving Fees and Costs:
Fees and costs related to mortgage relief measures should be waived by banks, providing financial relief to borrowers.
Exemption from Stress Test:
Insured mortgage holders are exempt from re-qualifying under the stress test when switching lenders during mortgage renewal.
Proactive Communication:
Banks are required to reach out to homeowners four to six months before mortgage renewal, informing them of affordability options.
Lump Sum Payments:
Borrowers can make lump sum payments to avoid negative amortization, or sell their principal residence without prepayment penalties.
Waiving “Interest on Interest”:
“Interest on interest” is waived when mortgage relief measures result in payments failing to cover interest on a loan.
Please feel free contact us for further clarification. We’re happy to help!
Are These Rules New?
Most of the guidelines already existed, but might have been unclear or difficult for consumers to find. The CMC consolidates these measures in one place, making it easier for vulnerable borrowers to understand their options. Two new additions include proactive outreach by banks before mortgage renewal, and exempting insured borrowers from the stress test when changing lenders. This is highly advantageous! We are here to help you navigate this beneficial transition with ease.
Who is Considered a ‘Vulnerable Borrower’?
The CMC doesn’t explicitly define ‘vulnerable borrower.’ However, the Financial Consumer Agency of Canada (FCAC) guidelines identify a “consumer at risk” as someone facing severe financial stress due to exceptional circumstances and at risk of mortgage default. Banks determine vulnerability through communication with borrowers. We can assist in this discussion!
Enforcement of Rules and Guidelines:
Borrowers who are not offered the outlined affordability measures can file a complaint on the FCAC website. The FCAC investigates complaints against federally regulated financial institutions, reporting the numbers and types of complaints to Parliament. The federal government closely monitors financial institutions’ compliance with relief measures outlined in the Canadian Mortgage Charter.
Conclusion:
The Canadian Mortgage Charter serves as a tool to help vulnerable borrowers navigate financial challenges. By understanding its guidelines, homeowners in Calgary can be better equipped to explore options and ensure they receive the support they need from financial institutions during these uncertain times.
Message from our Broker, Bob Reader
Please contact us to review and confirm.
It is advisable that all mortgage holders discuss their current employment and debt situation at least 6 months before their renewal date. Call us! Text us!! Email us!!! We’re here to help.
