The New Canadian Mortgage Charter

What You Need to Know

Amid challenges tied to rising interest rates and inflation, many Canadians are experiencing financial strain and worrying about their ability to keep up with mortgage payments. In fact, a recent Angus Reid survey found that four in five homeowners with a mortgage say they are either concerned (40%) or very concerned (39%) about facing higher payments when it comes time to renew their mortgage.

With 60% of borrowers set to renew their mortgages within the next three years, Canadian homeowners' concerns keep growing - especially since most Canadian mortgages have already hit their trigger rates (the point at which the payment no longer even covers the interest owed) and now carry longer amortization periods.

In late November, Finance Minister Chrystia Freeland introduced a new term: the "Canadian Mortgage Charter." The initiative was presented as a decisive step toward preventing financial distress and potential home loss among Canadians, by offering relief to borrowers facing mortgage renewals. But is that really the case?

Is the "Canadian Mortgage Charter" Actually Something New?

While the term "Canadian Mortgage Charter" is being widely discussed in the press, most of the measures it introduces have already been adopted and used by banks previously. The Charter brings most of these mortgage-lending measures together in one place, making it easier for consumers to find and understand them, and giving them a clearer picture of the options available to them.

What are the key provisions of the "Canadian Mortgage Charter"? Let's look at what this document actually means in practice for Canadian homeowners.

Advance Notice of Mortgage Renewal

While a typical bank contacts its borrowers 90 days ahead of their mortgage renewal date, under the "Canadian Mortgage Charter" homeowners will now receive notice four to six months before their renewal date. This advance notice is meant to give homeowners more time to plan for possible interest rate changes and explore suitable financial options. Aside from the advance notice itself, this provision doesn't offer any actual relief on mortgage payments - but it will give you time to reach out to a professional mortgage broker or your bank to explore your options.

Mortgage Relief Measures

This isn't new, but most banks are required to maintain individualized hardship-assistance policies. For example, if a homeowner is facing financial difficulty, the lender may extend the mortgage's amortization period, or allow a temporary extension of the repayment timeline for at-risk mortgage holders. Extending the amortization period can temporarily lower payments, but it also means it will take longer to pay off the mortgage, and therefore more interest paid over the long run.

It's worth noting here that the term "at-risk" is not clearly defined anywhere, which could lead to inconsistent interpretations across different financial institutions down the line.

Waiving Fees for Modifying Mortgage Terms

The "Canadian Mortgage Charter" requires banks to waive fees and charges associated with hardship-relief measures. This can include waiving fees for modifying mortgage terms or adjusting payment schedules during periods of financial difficulty.

Waiving Prepayment Penalties

Most mortgage products already allow borrowers to make lump-sum payments to reduce their outstanding mortgage balance and, as a result, lower their payments. Under the "Canadian Mortgage Charter," homeowners in financial hardship can make lump-sum payments without incurring prepayment penalties. The Charter also allows homeowners facing difficulty to sell their primary residence without prepayment penalties on their mortgage.

This particular provision is highly controversial. Banks - like any other business operating under contracts that specify penalties for early termination - cannot simply waive those penalties unilaterally. In such cases, investors would be left to cover those costs themselves, absorbing the penalties for early termination and the cost of finding new borrowers.

Waiving the Stress Test on Renewal

This provision may be the newest part of the "Canadian Mortgage Charter," yet it's already clear that it was already permitted by financial regulators and applied by banks. Homeowners with an insured mortgage coming up for renewal will not need to requalify using the "stress test" if they switch banks at the end of their mortgage term. Under the stress test, mortgage applicants are tested to determine whether they could still make payments at a rate of 5.25 percent, or at the offered contract rate plus two percentage points - whichever is higher. This opens the door for holders of insured mortgages to shop around for better offers when it comes time to renew their contract.

The government believes the "Canadian Mortgage Charter" sets a precedent for building a more consumer-friendly mortgage environment. By emphasizing transparency, flexibility, and support, the Charter is intended to help Canadians navigate economic uncertainty.

What Industry Lending Experts Are Saying

Alexandra Flynn, associate professor and director of the Housing Research Collaborative at the University of British Columbia, told Bloomberg that the lack of reliable, affordable rental housing is forcing people into expensive mortgages just to secure stable housing. "As a result, these homeowners suffer from higher interest rates," she said in an emailed statement. "The Canadian Mortgage Charter... won't solve the problem, it will just temporarily ease the symptom. What we need instead is serious investment in housing supply and rental properties, so that Canadians aren't forced into mortgages they can't afford."

"It's a lot of noise about nothing," added Tyler Hildebrand, a broker based in Saskatchewan. "Most of these things - reasonable as they are - are already standard practice at most banks and mortgage lenders anyway."

Mortgage Professionals Canada, the country's national association of mortgage brokers, echoed similar comments, noting that the "Canadian Mortgage Charter" contains few genuinely new initiatives.

"As for the 'Canadian Mortgage Charter' overall, it largely codifies measures that already existed to better protect mortgage holders facing significant financial pressure from higher rates, particularly with the upcoming wave of renewals," said MPC President and CEO Lauren van den Berg. "Combined with the federal government's investment in increasing housing and rental supply, this announcement is a step in the right direction," she added. "That said, more needs to be done to improve mortgage and housing affordability."