Canada's Deputy Prime Minister and Minister of Finance Chrystia Freeland takes part in a press conference before delivering the fall economic update in Ottawa, on Nov. 21.BLAIR GABLE/Reuters
The federal government announced measures on Tuesday to help Canadians who have been struggling to keep up with high interest rates navigate their looming payment shock. Finance Minister Chrystia Freeland announced the new Canadian Mortgage Charter, alongside several other housing measures in a slimmed down fall economic statement aimed at responding to affordability concerns that are now central to the Canadian political debate.
Here’s what we know about the charter so far.
What is the Canadian Mortgage Charter?
The Canadian Mortgage Charter spells out the rights consumers have when they are renegotiating mortgages. It calls on financial institutions to provide better relief measures over the next three years to Canadians buckling under a wave of renewals at much higher rates. The federal government has not budgeted any money for the mortgage charter and it is unclear which banks, if any, have signed on.
Under the new mortgage charter, lenders will be expected to notify mortgage holders four to six months in advance of their renewal date. The charter also emphasizes expectations that lenders should have appropriate mortgage relief policies for at-risk consumers, such as extending amortizations.
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The charter will also require lenders to waive fees and costs that would have otherwise been charged for relief measures and axed the requirement that mortgage holders would have to requalify under the insured minimum qualifying rate when switching lenders at mortgage renewal time.
Under the charter, homeowners would also be able to make lump-sum payments to avoid negative amortization, and be able to sell their principal residence without any prepayment penalties. It would also prevent interest from being charged on interest during any temporary period of negative amortization.
What new rights does the charter give Canadians?
The mortgage charter is broadly in line with guidelines published earlier this year by the Financial Consumer Agency of Canada.
In July, the FCAC said federally regulated financial institutions, including banks, must work to help at-risk consumers by “providing tailored support” that could include measures such as waiving penalties or other costs, while also emphasizing that it expected lenders to implement policies and procedures such as waiving prepayment penalties, waiving internal fees and costs, not charging interest on interest, and extending amortization.
Why did Ms. Freeland include the charter in this year’s economic statement?
Housing affordability has become a major political liability for the Liberal government. While the overall rate of inflation has fallen significantly over the past 1½ years, home ownership costs and rental rates continue to rise quickly. Part of this has to do with a chronic shortage of housing supply, which has been exacerbated by a surge in immigration over the past two years.
So far, around 40 per cent of Canadian homeowners with mortgages have seen their payments reset higher. A recent RBC Capital Markets report said an estimated $900-billion worth of Canadian mortgages held by the country’s chartered banks are due to renew between 2024 and 2026, likely at much higher rates given current borrowing costs.
The Bank of Canada’s aggressive monetary policy tightening campaign has pushed mortgage costs to the highest level in decades. This has not been balanced out by a drop in home prices.
What other initiatives were announced?
The update contains a package of measures related to housing and competition reform that the government had already signalled were coming.
Among the new housing measures announced Tuesday were $15-billion in loans for rental apartment construction, and $1-billion in investment, over three years, to support non-profit, co-op and public housing providers.
Ms. Freeland also set a new cap on the size of future deficits, pledging to keep them at no larger than 1 per cent of gross domestic product. The target implies maximum annual deficits of around $32-billion when the rule takes effect in the 2026-2027 fiscal year.
With reports from Bill Curry and Mark Rendell