Toronto Star ePaper

Relief may be in sight for mortgage holders

Potential new guidelines include extension of amortization periods

GHADA ALSHARIF

The Financial Consumer Agency of Canada has issued proposed guidelines endorsing that lenders offer relief measures for mortgage holders experiencing severe financial hardship amid high interest rates and increased cost of living.

The federal financial consumer watchdog said in the proposal that it expects lenders to establish “criteria for offering mortgage relief measures,” which can include an extended amortization period — the length of time it takes a homeowner to pay back their loan — and with no penalties charged.

Mortgage holders are grappling with high interest rates after the Bank of Canada’s interest rate hiking campaign that started in March 2022 and included eight successive rate increases.

Variable rate mortgage holders have been feeling the burden of fluctuating interest rates tied to the central bank’s benchmark rate and as a result more homeowners are seeking longer amortization periods in a bid to avoid defaulting and to lower their monthly payments.

Currently, variable rates are sitting above six per cent and five-year fixed rates are in the high four to five per cent range. Variable-rate mortgages now account for about a third of total mortgage debt, the central bank said in November, up from about 20 per cent pre-pandemic.

FCAC, which supervises federally regulated financial entities, said the proposed guidelines were developed “to support consumers who are vulnerable to mortgage delinquency as a result of exceptional circumstances.” The agency did not specify what these exceptional circumstances are and how they are measured, but the proposal highlighted factors including “high household indebtedness, the rapid increases in interest rates and the increased cost of living.

“These exceptional circumstances may reduce some consumers’ ability to service their debts,” the FCAC said.

Canadians have been piling on more debt over recent years. A recent report from Statistics Canada found that credit card debt was 13.8 per cent higher in December than it was a year earlier, rising to $93.4 billion from $82.1 billion.

The maximum amortization period for borrowers whose down payment is less than 20 per cent is 25 years. For borrowers who make a minimum 20 per cent down payment, the maximum amortization is 30 years.

According to the FCAC’s proposal, lenders and banks may extend borrowers’ amortization periods either on a temporary or permanent basis and the relief may apply to all mortgage types, including variable and fixed.

Lenders “should consider the circumstances of each situation with their customers to determine the right option,” the FCAC said.

If relief measures are offered temporarily, it can be done so “with consideration for the consumer’s ability to restore the amortization to the original period” and “within a reasonable time frame,” the proposal said. If offered as a permanent solution then the lender “must ensure that the total amortization length is reasonable.” The FCAC did not respond to an inquiry on what falls under a reasonable time frame.

Responding to an inquiry on what would be considered a reasonable time frame, the FCAC in an email said, “Until the guideline is finalized … it would be premature for FCAC to comment on how specific expectations will be applied. This includes expectations around terms such as ‘reasonable time frame.’ ”

According to mortgage experts, lenders have already been providing relief to borrowers experiencing financial hardship on an informal basis and the proposal is a good step toward formalizing solutions for consumers who need it.

The Canadian Bankers Association said in email that it appreciates that the FCAC “seeks to formalize regulatory expectations in these circumstances … Bank staff are assisting these customers, including those with variable rate mortgages whose trigger rate is reached, or will soon be reached, to explore various payment options.”

Ron Alphonso, president of Mortgage Broker Store, said that lenders have been offering consumers relief on a voluntary basis, but in some cases “there are certain people we can’t help.”

“We can give people a break,” Alphonso said. “But having formal rules would mean bigger lenders would be required to follow the rules.

“Right now it’s voluntary. If we made it mandatory that would help,” Alphonso said.

According to the FCAC’s proposal, lenders and banks may extend borrowers’ amortization periods either on a temporary or permanent basis and the relief may apply to all mortgage types, including variable and fixed

BUSINESS

en-ca

2023-03-31T07:00:00.0000000Z

2023-03-31T07:00:00.0000000Z

https://torontostar.pressreader.com/article/281943137145479

Toronto Star Newspapers Limited