The federal government recently introduced the Canadian Mortgage Charter by way of the Financial Consumer Agency of Canada (FCAC). Let’s look at what the Charter is, who it’s for and how to make sure your rights as a homeowner or buyer are protected.
What is the Canadian Mortgage Charter?
The Canadian Mortgage Charter acts as a guide for banks and lending institutions. It lays out how they should treat borrowers facing financial challenges. This document, coming from the FCAC in July 2023, acts as a clear and public set of rules. It highlights six commitments that Canadian borrowers can expect from their banks:
1. Extended Amortization: If you’re struggling with mortgage payments, the bank can give you more time.
2. Fee Relief: Your bank won’t charge you extra fees if you need financial help.
3. Smooth Lender Switch: If you have mortgage default insurance, switching lenders will be a lot easier. You won’t need to qualify again.
4. Early Renewal Notice: Banks will get in touch four to six months before your mortgage renewal to discuss options.
5. Flexible Payments: If you’re at risk, you can make lump sum payments or sell your home without penalties.
6. No Extra Interest: If relief measures cause temporary negative amortization, the bank won’t charge extra interest.
What’s new in the Canadian Mortgage Charter?
While most of the measures in the Canadian Mortgage Charter were already around, they weren’t clear or accessible to consumers. Compiling these measures into a single document simplifies them and makes it more accessible for vulnerable borrowers to understand their available options.
A positive new addition to the Charter is encouraging banks to take a proactive approach. Banks are to reach out to borrowers four to six months before mortgage renewal dates. This helps ensure that borrowers are well-informed about their choices ahead of time.
Another positive addition relates to insured borrowers. They no longer need to pass the mortgage stress test again when switching lenders. This simplifies things for default-insured borrowers and increases flexibility.
Any homeowner would find this information invaluable. Especially, those struggling financially. Releasing the Charter is the federal government’s effort to inform them in a clear, proactive, and accessible way.
What is a vulnerable borrower?
The Canadian Mortgage Charter doesn’t say what a “vulnerable borrower” is. However, the FCAC defines it as a “consumer at risk” as an individual with an existing residential mortgage. Those experiencing significant financial stress from “exceptional circumstances.” This puts them at risk of failing to pay their mortgage.
Banks are to contact the homeowner four to six months before their mortgage renewal. It’s a chance for borrowers to talk about their financial situations. With open communication, both parties can look at possible solutions.
Banks do not, on their own, figure out who falls into the ‘at-risk’ category. This is only revealed once when talking with a homeowner. This new measure is a built-in way to easily open a channel of cooperation and communication between borrowers and lenders. It’s a personalized and empathetic way to look after financial challenges.
How is the Charter enforced?
Do you feel that you haven’t been offered the rights in the Canadian Mortgage Charter? If so, you can file a complaint on the FCAC website. The FCAC handles investigating complaints related to federally regulated financial institutions. This includes many banks, credit unions, authorized foreign banks, insurance companies, and trust and loan companies.
The FCAC uses the findings from their investigation to find and resolve other situations. Although it doesn’t say which things are used. The FCAC does report the “numbers and types” of received complaints to Parliament.
The federal government also plays an important role. It watches financial institutions to make sure they are offering the relief measures outlined. While the Charter does not detail specific enforcement measures, the goal is to keep transparency and accountability in the Canadian mortgage sector.
What does it mean for Canadians with a mortgage?
The FCAC created the Charter as a support system for banks to find and help any at-risk homeowner. It aims to lower the number of those in severe financial distress and home loss among Canadians.
It’s important to note that the Canadian Mortgage Charter is not law. Instead, it lays out what is expected of banks. This is similar to other proposed government changes including those for mortgages, bank account fees, and dispute resolution. A borrower facing a lender not following these expectations can file a complaint on the FCAC website. The consequences of not following these proposed expectations are not clear.
Besides the Charter, the Fall Economic Statement has billions in new spending to speed up housing construction and regulate short-term rentals. These efforts are all aimed at prioritizing homes for Canadians to live in as their primary residence.
What to do if you’re in debt and are facing challenges
With the high cost of living, many Canadian families are facing financial challenges. Rising interest rates haven’t helped either. If your family is facing financial challenges due to household debt, you’re not alone.
If you’re in debt and you’re finding it hard to make your payments, it’s important to be proactive. That means reaching out to your bank ahead of time and coming up with a solution before you start missing payments. It puts you in a much better position. It also helps protect your credit score, keeping your cost of borrowing lower.
If you’re in debt due to spending, it’s a good idea to reach out to a credit counsellor. This can help you get your finances back on track by teaching you basic financial skills and setting you up with a debt repayment plan that fits with your budget.
Final thoughts
The Canadian Mortgage Charter is a good start, but far more needs to be done to help borrowers. As a homeowner, you can benefit from it by reviewing it and knowing your rights. The banks may not proactively reach out to you. Know your rights so your family is fully protected under the Charter.
