What is Canadian Mortgage Charter? Everything You Need to Know 

In the Fall Economic Statement (FES), the Liberal government introduced the Canadian Mortgage Charter, an initiative aimed at guiding financial institutions in their treatment of borrowers. 

While not a law, the charter outlines rules and expectations for banks to follow without plans for legislative enforcement. It addresses concerns about rising interest rates impacting mortgage affordability, emphasizing assistance for Canadians facing financial strain.

Key Guidelines of the Charter

The Canadian Mortgage Charter outlines six guidelines for banks in dealing with vulnerable borrowers:

  1. Allow temporary extensions on the amortization period.
  2. Waive fees and costs associated with mortgage relief measures.
  3. Exempt insured mortgage holders from re-qualifying under the stress test during lender switches.
  4. Require proactive outreach to homeowners four to six months before mortgage renewal.
  5. Permit lump sum payments to prevent negative amortization or facilitate property sales without prepayment penalties.
  6. Waive interest on interest when mortgage relief results in insufficient payments.

New Measures & Vulnerability

While most guidelines existed previously, they were dispersed. The charter consolidates them, adding two new rules: mandatory proactive outreach and stress test exemptions for insured borrowers.

A vulnerable borrower, as per Financial Consumer Agency of Canada (FCAC) guidelines, experiences severe financial stress due to exceptional circumstances, risking mortgage default.

Enforcement & Complaint Mechanism

Enforcement mechanisms include borrowers filing complaints on the FCAC website if affordability measures outlined in the charter are not offered. 

The FCAC investigates complaints related to federally regulated financial institutions. Monitoring of financial institutions’ compliance occurs at a federal level, but specific enforcement measures are unspecified in the charter.

In summary, the Canadian Mortgage Charter responds to rising interest rates, offering guidelines for banks in assisting vulnerable borrowers. 

While not legally binding, it consolidates existing measures and introduces new ones, aiming to enhance transparency and accessibility for borrowers facing financial challenges. Enforcement involves a complaint mechanism through the FCAC, with federal monitoring of financial institutions’ adherence to relief measures.

Source: CBC News

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