Ottawa has recently released a comprehensive set of guidelines aimed at standardizing the provision of mortgage relief to struggling consumers by federally regulated lenders in Canada. This new approach has the potential to save mortgage holders from incurring expensive fees and penalties associated with refinancing or altering the terms of their loans.
The guide, published by the Financial Consumer Agency of Canada (FCAC) on Wednesday, specifically targets homeowners and mortgage holders with variable rates or those renewing their fixed-rate terms. Many of these individuals have experienced a significant increase in their monthly payments due to the Bank of Canada’s interest rate hikes over the past year.
Variable rate mortgage holders have either witnessed a corresponding increase in their payments or a longer repayment period as a larger portion of their monthly payments goes towards covering rising interest costs.
Similarly, homeowners who initially secured fixed-rate mortgages during the COVID-19 pandemic at lower rates are now facing much higher interest rates and substantial jumps in their monthly payments during renewal.
The FCAC guide primarily focuses on individuals who are at risk of defaulting on their mortgages due to higher payments combined with a rising cost of living. While banks and lenders have offered relief options to consumers in such situations in the past, the FCAC’s new guidelines aim to streamline the approach taken by federally regulated institutions. Although the agency cannot mandate specific actions for these institutions, it has established expectations regarding how lenders should handle these circumstances.
For instance, the guidelines recommend the waiver of prepayment penalties and internal fees associated with changing mortgage terms, as well as the exclusion of interest on interest. The FCAC also emphasizes that if banks choose to extend the loan’s amortization (i.e., prolong the repayment period to manage regular payments), this extension should be for the shortest time frame possible.
Banks are also expected to proactively monitor their mortgage portfolios for signs of risk among consumers. The agency urges lenders to reach out to Canadians at risk of financial distress to explain the available options.
The introduction of these guidelines fulfills a promise made in the Liberal Party’s 2023 budget to establish a code of conduct for mortgage holders’ protection. During an event in Toronto, Finance Minister Chrystia Freeland discussed the FCAC guidelines, stating that the objective is to assist struggling Canadians in navigating ongoing economic challenges by ensuring fair treatment and tailored mortgage relief from financial institutions.
© 2023 Global News, a division of Corus Entertainment Inc.
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