First National Financial LP

Residential Mortgage Commentary - Ottawa offers comfort to nervous borrowers

  • First National Financial LP

The Fall Economic Statement from the federal government concentrated closely on Canada's housing situation.  Most of the new spending is meant to address the need for adequate, affordable shelter, rather than increasing housing stock to quench the "desire for ownership".  But there was one item that seemed designed to get the attention of most homebuyers.

The Canadian Mortgage Charter is supposed to reinforce of Ottawa's expectations of how federally regulated financial institutions will deal with vulnerable borrowers.

  • Allow temporary extensions of amortization periods for at-risk mortgage holders.
  • Waive fees and costs that “would have otherwise been changed for relief measures.”
  • Exempt insured mortgage holders from re-qualifying under the stress test when switching lenders at the time of a mortgage renewal.
  • Require financial institutions to contact homeowners 4 to 6 months ahead of a mortgage renewal, and make them aware of their options.
  • Give at-risk homeowners the ability to make “lump sum payments” without prepayment penalties to avoid a negative amortization or sale of their principal residence.
  • Avoid charging interest on interest by waiving interest charges in the event that mortgage relief measures result in payments that do not cover interest payments on the loan.

The measures have been generally welcomed, but most of them are already included in guidelines from the Financial Consumer Agency of Canada.  They are not law and there are no plans to put them into legislation. 

Recent surveys suggest that anywhere from 35% to nearly 90% of homeowners, who face mortgage renewals, are worried about increased payments.

Putting the Charter into the Fall Economic Statement appears to be an effort to comfort the growing number of homeowners who are worried about mortgage renewals in the current high interest rate environment.