Higher monthly debt payments due to the Bank of Canada’s interest rate hikes are putting an unmanageable burden on many Canadian households, especially those who bought homes early in the pandemic when financing costs were lower.
A recent study from Angus Reid shows that the number of Canadians struggling with mortgage payments has doubled since March, while another report from RBC Capital Markets shows that Canada’s major banks warns that around 60% of outstanding mortgages will come due and up for renewal within the next three years. , homeowners could face significant “payment shock” at renewal.
In anticipation of these challenges, the federal government today outlined how financial institutions are expected to work with mortgage holders, including providing relief and ensuring payments are reasonable. announced the establishment of a new Canadian Mortgage Charter.
Deputy Prime Minister and Minister of Finance Chrystia Freeland said in today’s Fall Economic Statement that the “Canada Mortgage Charter provides tailored guidance on what at-risk Canadians can expect from their banks if they find themselves in financial distress.” “Mortgage relief measures are detailed.”
“Our goal is to ensure at-risk Canadians receive the support they need to pay off their mortgages or keep their homes on renewal when interest rates rise. By doing so, we are helping Canadians get through this incredibly difficult time.” And we are committed to taking further action where necessary. ”
Under the Charter, Canadians will be provided with guidance to seek better mortgage rates when renewing their loans in a tough market.
One of the key components of this Charter is that it does not require insured mortgage holders to requalify based on the insured minimum qualifying rate when switching lenders upon mortgage renewal. This means these mortgage holders do not need to pass a stress test again with their existing financial institution, and stress testing is only required if they are considering changing to another financial institution. Currently, many mortgage holders have limited or no other options as they must re-qualify and pass a stress test before moving on to another lender.
Other provisions of the Charter include allowing a temporary extension of the amortization period for mortgage holders at risk and waiving fees and costs that would have been charged for relief measures; This includes contacting homeowners four to six months before mortgage renewal to notify them of the following: Update options.
Additionally, the charter would also give at-risk homeowners the ability to make a lump sum payment to avoid negative depreciation or sell their primary residence without prepayment penalties. Become. Similarly, in a scenario where mortgage relief temporarily results in negative amortization, no interest will be charged.
In his update, Freeland announced billions of dollars in additional funding and low-cost loans to help promote new rental and affordable housing across the country, as well as new funding for illegal short-term rental housing. announced federal measures.