Fiscal Agency Proposes Mortgage Relief for Canada's Homeowners

Canada’s Financial Consumer Agency (FCAC), which supervises federally regulated financial entities, has proposed new guidelines that will permit lenders to offer relief to homeowners struggling to pay mortgages with variable rates.

The relief will include an extension of the amortization period on these loans, enabling homeowners to move several payments to the back of the mortgage—extending the window for paying the loan back—with no penalties charged.

In Canada, the maximum amortization period for borrowers who make a down payment of less than 20% is 25 years; borrowers who make a down payment of 20% or more can expect a maximum amortization of 30 years.

FCAC’s proposal allows lenders to extend amortization rates for fixed as well as variable rate mortgages. Temporary extensions that include a schedule to restore the original amortization period also are permitted.

Variable rate mortgage holders were hit the hardest by the Bank of Canada’s campaign of eight consecutive rate hikes in 2022, a campaign BOC has paused in 2023 at a ceiling of 4.5%, while the Federal Reserve continues upward in the US.

Longer amortization periods can assist homeowners in avoiding foreclosures and in lowering their monthly mortgage payments. According to a report in the Toronto Star, lenders have been extending forbearance on an informal basis to borrows experiencing financial hardship.

Variable mortgage rates in Canada currently are plateauing at slightly above 6%; five-year fixed rates are in the high 4% and 5% range. According to BOC statistics, variable rate mortgages now account for about one-third of mortgage debt, compared to a 2019 level of 20%.

In a statement, FCAC said the new mortgage guidelines are designed “to support consumers who are vulnerable to mortgage delinquency as a result of exceptional circumstances, [which] may reduce some consumers’ ability to service their debts.”

The exceptional circumstances include high-household indebtedness—according to Statistics Canada, credit card debt in Canada was 14% higher in December in a YOY comparison—and persistent inflation, which in Canada has dropped below 6%.

The Canadian Bankers Association (CBA) issued a statement supporting the FCAC’s move to formalize the forbearance arrangements many banks have been making with clients under financial duress.

“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,” the CBA said.