The Canadian Mortgage Charter: What you need to know

Amidst the challenges of escalating interest rates and inflation,, many Canadians are finding themselves financially strained and worrying about their ability to make their mortgage payments.  In fact, a recent Angus Reid poll indicated that four-in-five homeowners with a mortgage say they are either worried (40%) or very worried (39%) they will face higher payments when it comes time to renew with their bank.   

With 60% of Canadians about to renew their mortgages in the next 3 years, the concerns of Canadian homeowners only continues to escalate, especially as most Canadian mortgages have already hit trigger rates and are running longer amortizations.

This week, Finance Minister Chrystia Freeland unveiled a new term called the “Canadian Mortgage Charter”.  The Canadian Mortgage Charter is intended to be a crucial step towards averting financial stress and Canadians potentially losing their homes, by providing relief for Canadians facing mortgage renewals.

Is the Canadian Mortgage Charter New?

While the term “Canadian Mortgage Charter” is hot off the press, most of the measures introduced were already in place.  The Canadian mortgage charter puts most of these mortgage measures into one place, making it easier for consumers to locate or understand and providing clearer insights into available options. 

What are the key provisions of the Canadian Mortgage Charter? Let’s explore the Canadian Mortgage Charter and it’s practical implications for Canadian homeowners. 

‍Advanced Notification of Mortgage Renewal

Whereas the typical bank contacts their borrowers within 90 days of their mortgage renewal date, under the Canadian Mortgage Charter, homeowners will now receive a notification four to six months before their mortgage renewal date. This advance notice is intended to give homeowners more time to plan for potential changes in interest rates and explore suitable financial options.   Other than earlier notification, this provision does not provide any form of mortgage payment relief, but it will give you time to contact a professional mortgage broker to seek options, or connect with your lender to proactively manage your situation.

Mortgage Relief Measures

This isn’t new, but most lenders are required to implement tailored relief policies. For instance, if a homeowner faces financial hardships, the lender might extend the mortgage's amortization periods or Allow for temporary extensions of amortization periods for at-risk mortgage holders.  Extending the amortization period can temporarily lower payments, but also means you’ll take longer to pay off your mortgage and thus pay more interest in the longrun.

Waiving Fees to Modify Mortgage Terms

The Canadian Mortgage Charter requires lenders to waive fees and costs associated with relief measures. This could include waiving fees for modifying the mortgage terms or adjusting payment schedules during challenging financial periods.

Waiving Mortgage Prepayment Penalties

This isn’t new as well.  Most mortgage products give a borrower the ability to make lump-sum payments to reduce their mortgage balance and therefore reduce their payments.  Under the Mortgage Charter, homeowners in distress can make lump-sum payments without incurring prepayment penalties.  The charter also enables homeowners to sell their principal residence without facing prepayment penalties. 

No Stress Test at Renewal

This provision is arguably the newest part of the Canadian Mortgage Charter, however, it was apparently always the case through financial regulators. Homeowners with an insured mortgage up for renewal will not have to requalify with the “stress test” if they’re switching lenders at the end of their term. The stress test has mortgage applicants stress tested to see if they could make payments at rates of 5.25 per cent or the contract rate on offer plus two percentage points — whichever is higher.

This opens up the opportunity for insured mortgage holders to shop around for better deals prior to renewal time. 

As the Canadian Mortgage Charter comes into play, it sets a precedent for a more consumer-friendly mortgage landscape. By emphasizing transparency, flexibility, and support, the charter aims to assist Canadians in the face of economic uncertainties.

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